S&P 500 Sector strength

S&P 500 index finished the year 2008 at 903 and closed on 03-09-09 at 676. Currently, it is up 30% from that significant bottom. One way to gauge relative strength of different sectors within S&P 500 is to compare the different Select Spyder ETFs ($TRAN is used here for Transportation Sector). We are using the comparison from Mar 09, since that is was a significant bottom.

Clearly the Financial Sector (XLF) is the best relative performer with 70% gain since 03-09-09. $TRAN, XLY, XLI and XLB significantly outperformed S&P 500. XLK was marginally better while XLE, XLU and XLP underperformed the broader market.

First lets look at the best performer, XLF. Between the market peak of July 2007 and significant bottom on Mar 2009, XLF was down 82% while S&P 500 was down 56%. Between the previous market bottom on 11-20-08 and the recent one in Mar 2009, XLF was down 33%, while S&P 500 was down 10%.

So, going into the low of Mar 09, XLF was under performing the S&P 500 while the S&P 500 was itself declining. XLF was the worst relatively performing sector due to the worldwide implosion of Credit Markets.

Mar 09, 2009 becomes a significant pivot from where the XLF took off. Although the advance of XLF has been pretty volatile (notice the jagged curve of advancing XLF), it has managed to advance significantly more relative to S&P 500.

Recall the old Wall St. Disclaimer about past performance not being the guarantee of future results. Past weakness shall not construe future weakness either. This is the case in point. So much so for picking out past year winners both in equities and Funds in the hope that they will repeat their performance.

XLP is the weakest sector relatively. This is considered a "defensive" play. Weakness in defensive sector means that market's risk appetite has grown.

The marginal relative performance of XLK (technology) is another thing to ponder as Technology is a leading sector during early Business Cycle Recovery. But a double bottom of XLK at 13.10 is a harbinger of good things to come.

Since the other sectors are mostly in line, if Financials can hold their strength and Technology improves its position, it is a sign of early cycle recovery.