In short, we’re continuing to see outperformance by defensive areas of the market. The table below displays sector performance (using sector ETFs) since March 16th, which is when the S&P made its 2011 low. The index is up by about 5% since then (although it’s down by about 3% so far in May). As shown, only one cyclical sector (Consumer Discretionary) is ahead of the S&P since mid-March as defensives have asserted themselves.
We’re not entirely sure what to make of the rotation to defensives at this point. Either the bull market is simply transitioning to a more mature phase where gains continue but at a more modest pace, or investors may be positioning for the possibility of a volatile summer following the end of QE2 in June. We continue to really like parts of the defensive trade, but are a little cautious in the very short-term due to the degree of the recent run-up.
Sector Performance
3/16 - 5/25
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Sector
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ETF
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Return
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Telecom
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IYZ
|
13.6%
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Health Care
|
XLV
|
13.2%
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Consumer Staples
|
XLP
|
11.1%
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Utilities
|
XLU
|
9.6%
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Consumer Discretionary
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XLY
|
6.1%
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S&P 500
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SPY
|
5.4%
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Materials
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XLB
|
5.3%
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Industrials
|
XLI
|
5.0%
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Technology
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IYW
|
3.6%
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Energy
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XLE
|
3.1%
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Financials
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XLF
|
-2.3%
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