Stocks lost ground in a big way about a month back, with global growth fears giving us the first major correction of the year. It didn’t last long, with investors gaining confidence that the strong U.S. economic momentum will be able to sustain itself without global growth support. Greater confidence in the Fed’s ability to keep rates lower for longer has been very helpful, though some could see hints of complacency in this attitude.
Topping it all, the third quarter earnings season came through as reassuring enough — in the sense that it belied some of the more exaggerated global growth fears. All in all, stocks rebounded strongly from the early October bottom and have easily scaled the prior all-time high peak.
It has been a good run for stocks, but the gains aren’t evenly distributed or even concentrated in areas that we would typically associate with excessive bullish sentiment. The S&P 500 index is up +10.8% year to date, but top three best performing sectors are Transportation (up +30.6% year to date), Medical (+25.5%) and Utilities (+21%).
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Energy leads the list of laggards, with the sector down -3.4% year to date, largely reflecting the sharp drop in oil prices lately. The Transportation sector’s outperformance is partly mirror image of what has been happening with oil prices. Other laggards include Industrials (up +1.5%), Autos (+1.8%), Consumer Discretionary (+3.1%) and Retail (+5.3%).
When utility operators like Exelon (EXC) and Pepco Holdings (POM) are among the year’s best performing stocks, then you know that investors aren’t blindly chasing glamour stocks. In fact, the outperformance of the defensive sectors shows that investors are overall fairly cautious, with their preference for stocks largely a reflection of the dearth of opportunities elsewhere in the market. With the seasonally stronger period ahead, one would expect this trend to gain even more momentum in the coming days.
