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Real Time Insight

We know the sectors that have lead us to new all-time highs in the S&P 500: Financials, Consumer Discretionary, and Healthcare.

And we know through bottom-up stock-picking why these have been leaders: their industries and companies have had the consistently-strongest earnings momentum.

Here's a performance view of the 9 SelectSector SPDRs this year...

But another way of looking at where the money is flowing is by comparing the relative strength of sectors to the index and to each other.

Below are two "sector ratio" charts plotting Financials (XLF - ETF report) and Consumer Discretionary (XLY - ETF report) against the S&P 500 tracking ETF (SPY - ETF report), and vs. the index. I left out Healthcare (XLV) because I've talked about that one so much recently in biotech articles.

Next, let's look at two of the laggards, Technology (XLK - ETF report) and Industrials (XLI), but this time on a 3-year chart so you can see more recent history of their ratio to SPY.

Finally, below is the Consumer Staples (XLP - ETF report) chart, which had a terrific first quarter and helped drive the index higher. Then, two things happened.

First, if institutions were hiding out in the safety and yield of Staples to avoid a market downturn, they missed lots of alpha elsewhere. And, second, when dividend-payers were hit on fears of rising interest rates, money hiding there was forced to reallocate. 

The reason I like to look at a 3-year chart here is for perspective on when the market rallies or corrects relative to XLP strength or weakness.

By the way, you can also plot these charts as sector vs. sector to see where their relative strength comes up in the past against the index. But I think it's intuitive from the above charts that the leaders would show high relative strength vs the laggards in just about any time frame this year.

Okay, enough chart stuff. Whether or not I added anything to your outlook about "sector relativity," I'm sure you have views about which sectors and industries will lead the market to new highs in the second half.

So let's hear it... Are you ready to bet on Tech and Industrials yet, or are you sticking with the leaders that got us here? Get as industry-specific as you want if you've done particular screening for earnings momo by company and/or sub-industry.

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