Sam Stovall popularized sector investment and analysis in the mid-1990s. While investors can apply various fundamental and technical research techniques, the most objective way to evaluate performance of individual sectors is to compare them relative to each other.
Tracking the performance of all nine Select Sector SPDRs against the benchmark S&P 500 Index provides us with information that can be used to anticipate future rotation of these sectors within the S&P 500 Index.
From February 2011 high, the sectors, from strongest to weakest, are as follows:
- CYAN Materials Select Sector SPDR ETF (XLB)
- YELLOW Energy Select Sector SPDR ETF (XLE)
- GREY Health Care Select Sector SPDR ETF (XLV)
- GREEN Industrial Select Sector SPDR ETF (XLI)
- BLUE Consumer Staples Select Sector SPDR ETF (XLP)
- MAGENTA Technology Select Sector SPDR ETF (XLK)
- WHITE Consumer Discretionary Select Sector SPDR Fund (XLY)
- RED Financial Select Sector SPDR ETF (XLF)
- ORANGE Utilities Select Sector SPDR ETF (XLU)
Observations and Analysis
Since the last review on March 11, the S&P 500 Index has experienced a price rise back to test the February 2011 highs. In light of this development, we examine the sector rotation since the March 16 low and, as expected, see that during the correction over the past few days, investors have been rotating out of the sectors formerly at the top into the ones formerly at the bottom.
The S&P 500 Index rose 6.26% between March 16 and April 6, 2011. The best performing sectors during the uptrend — basic materials and energy — are taking a hit as investors rotate into consumer staples and healthcare.
Rebased Charts
Our rebased charts display the percent change in price of a number of ticker symbols from a date in the past less the percent in change of a benchmark ticker symbol. This technique allows us to compare the net performance of these ticker symbols of different price levels against a benchmark.