If the market keeps going higher, what will push it there?
Mike O’Rourke at BTIG has some thoughts/observations:
Over the past 5 sessions, the best performing sectors have been Technology (+3.4%), Health Care (+3.4%) and Financials (+2.88%). What is interesting is that coming into the current week, Technology was the worst performing sector year to date (-7%) and Health Care was the third worst performing (-5%). Rounding out the top three was Energy (-5.3%). Now Energy is the current worst performing sector year to date. Financials were flat year to date at the start of the week. If this is a new trend in rotation, it should be a positive sign. Technology, Health Care and Financials comprise 46% of the S&P 500. If these sectors transition from laggards to leaders, they will have a notable influence on performance.
The other laggard, Energy, experienced a great deal of damage as a result of the BP spill but despite the fact that a permanent seal is about be placed on the well, the Energy sector’s recovery has been lackluster. Also noteworthy is the pick-up in activity in commodities across the board with the exception of Energy. Should the commodity rally broaden, Energy equities are in an attractive position to rally. If you go one step further and look at the Technology, Financial, Health Care and Energy sectors collectively, they comprise 57% of the S&P 500 and trade 11.15x next year’s earnings and 12.8x this year’s earnings. Additionally, it’s probably safe to say a healthy portion of the cash on corporate balance sheets would be in that group. A few days certainly don’t make a trend, but these sectors are worth watching to see if new leadership is emerging.
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