US Sector Update: Friday, January 11, 2013

The Industrials and Basic Materials sectors are hand-in-hand in their action in the last few months.  Up until the last 2-3 months, the Basic Materials sector had been in a protracted decline of relative strength, but starting in the fall of last year, they both dug in and started to persistently rally.  In the case of both sectors, the upside gains have been good across the board, but the stocks in the mid-range of capitalization have shown the best performance.

A missing participant had been Technology, except for the few super-stars like Apple.  That game has changed, as the larger-cap Tech stocks have stalled, while the mid-caps have started to show very good underlying strength.  The Financials sector is opposite in its internal action, in that the large-caps are carrying the ball more effectively.  The sector as a whole is hanging in there, but not showing any signs of moving up to a leadership position.

The two sectors that had been the leaders a few months ago, Healthcare & Consumer Discretion, are continuing to settle back into the pack since the election.  Not sure if this has a fundamental expectatation, but will be watched closely in the coming weeks.

Contrary to the main trend, the two sectors in which the larger-cap stocks are showing much better resilience are the Consumer Discretion & Financials sectors.  This is very obvious in the charts below.

The rest of the pack, Consumer Staples, Energy, Telecom & Utilities, continue to lag behind. 

Don Hays, Nicholas Warf & Justin Wood

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