It’s subtle. But it’s there. I’m talking about the modest rotation OUT of more-offensive sectors and IN to more-defensive ones.
Look at these two MoneyShow Charts of the Day. The first shows the relative performance of the Health Care Select Sector SPDR Fund (XLV) versus the Financial Select Sector SPDR Fund (XLF). The second shows the same ratio comparison between the Consumer Staples Select Sector SPDR Fund (XLP) and the Consumer Discretionary Select Sector SPDR Fund (XLY).
Chart 1: Health Care Vs. Financials
Source: StockCharts.com
Chart 2: Consumer Staples Vs. Consumer Discretionary
Source: StockCharts.com
What stands out? Health care stocks are “breaking out” relative to financials after a long period of underperformance. You’re seeing the same thing for staples stocks versus discretionary ones, although in that case, it’s a more-muted move.
While I didn’t include a chart here, I’d also note that the iShares 20+ Year Treasury Bond ETF (TLT) has returned roughly 7.5% in the last three months. Bond prices move in the opposite direction of bond yields, so that’s being accompanied by a sharp drop in the latter. The yield on the benchmark 10-year Treasury Note just sank below 4% briefly, for instance. That was its lowest level since April.
Add it all up and I’d say markets are increasingly betting on economic weakness. Again, it’s subtle. It’s early. But it’s worth watching. Because if this trend were to continue, I’d probably dial back my “Be Bold” stance on markets.
