Sector Shifts Show a Constantly Evolving Market

VT Tyndall North American Fund

Sector Shifts Show a Constantly Evolving Market

To look at the S&P 500 over the last few months it would be easy to conclude that it has been a relatively quiet market. But the index belies a much more volatile market beneath the surface, with some surprising moves at the sector level which are not much talked about but are important.

Whilst many investors think of the Technology sector as the first port of call when looking at the US, it hasn’t been the best performing sector year to date. It currently sits 5th out of 11 sectors, not too bad, but distinctly middle of the pack. This is in part due to the fact that the average Tech stock has struggled to perform since peaking in March 2020 relative to the market, as can be seen below.

Indeed some 55% of the Nasdaq Composite is currently trading below its 200d moving average, indicating a downtrend. The best performing sector year to date is Financials, with a gain of around 27%. Perhaps surprising to some given that this sector has been out of favour for so long, but it’s very often the case that once a sector has been left for dead it quietly starts to outperform. This performance has been picked up in the Momentum ETF and it is Financials, not Tech, that is the biggest weighting now at 30%.

In other corners of the market there are big stocks like Amazon that are quietly underperforming, that stock hitting a 17-month relative low vs the index this week.

But it the Consumer Staples sector that really stands out to me. Not only is it the worst performing sector year to date with a paltry gain of just over 7%, the sector is now near its lowest ever weighting within the index, and you’d have to go back to March 2000 to see it lower:

This shows how out of favour these stocks are and that old businesses don’t always make for great investments. It is also an indication of these companies’ current predicament of being price takers in a world of accelerating inflation.

20th August 2021
Read time : 3  mins

This content is intended for professional clients only.

Data source: Strategas Research Partners
Not for retail distribution – this document is intended for professional clients only

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