The stock market is getting knocked again today, but the pain isn’t evenly spread out. Who’s up for another look at the relative strength of cyclicals? Great, me too!
As long-term readers know, one of my favourite metrics to follow is the Morgan Stanley Cylical Index (^CYC) divided by the S&P 500 (^SPX). This is far from a comprehensive analysis but it is a quick-and-dirty look at the “mind of the market.”
Since late August, the market’s rally has been disproportionally powered by cyclical stocks. In fact, the ratio of the CYC to the S&P 500 reached an all-time high on February 11th (my data goes back to 1978).
The ratio hit a previous peak on January 10th and soon after, cyclicals dropped off sharply. I quickly jumped on this and thought it was the end of the cycle. Wrong! The ratio soon rallied and peaked on February 11th, just a hair above the level for January 10th (0.8442 to 0.8441).
The CYC is down again today (although many energy names are up). If today’s numbers hold up, the ratio will close below the low made on January 21.
The reason these cycles are so important is that once they get going, they often last for a few years. Put it this way, if the Dow had kept pace with the CYC since the low from two years ago, today the Dow would be over 24,000 today.