The chart below shows that all nine sectors of the S&P 500 are in the black this months. Industrials, Cyclicals and Financials are the leaders, Energy and Utility sectors are far behind.
The performance chart below shows the Railroad, Trucking and Delivery Services indices during the past three months. These three indices are components of the Industrial Sector. All three of them are in an uptrend. This shows a healthy economy where there is a need to transport all the unfinished and finished goods between suppliers and customers.
There are 9 daily charts below showing the 9 sectors of the S&P 500 during the past 2 months. Below each chart the 25-period Aroon trend indicator is shown. For the Consumer Staples, Energy and Utilities sectors Aroon Up is above Aroon Down and it is over 95. For the other 6 sectors Aroon Up is below Aroon Down and less than 50. The charts below clearly show the strength of the defensive sectors and the weakness of the offensive sectors such as Cyclicals, Financials and Technology.
XLY and XLP are two sector ETFs of the S&P 500. XLY is representing the consumer discretionary sector and XLP representing the consumer staples sector. XLY is considered an offensive sector and XLP a defensive sector. In a healthy, growing economy investors take more risk and money flows in into offensive sectors such as the consumer discretionary sector. For this reason when XLY outperforms XLP it is bullish for the market. The chart below shows the XLY:XLP ratio and as you can see for the most part it was trending higher during the time period shown. On this chart you can see SPY, the S&P 500 ETF too for reference. The indicator window shows the correlation between this ratio and SPY. The correlation is close and stays above 0.50 most of the time. The recent sharp decline of this ratio since March put the correlation coefficient near zero. The sharp decline of the XLY:XLP ratio is just another way to visualize the recent sector rotation. We know that the correlation coefficient is going to move back above 0.50 in the near future. There are two scenarios, either the XLY:XLP ratio is going to turn up or SPY, the market is going to follow the ratio lower. The market won’t able to move higher without the support of the consumer discretionary sector.
As offensive sectors declined money was rotated into defensive sectors. During the past month the utility sector was especially doing well. The market carpet below shows how the utility stocks in the S&P 500 performed during the past month. When the utility sector loses leadership that would be a sign that the equity market found a firm support.
The performance chart below shows the nine sectors of the S&P 500 with the S&P 200 ETF, SPY. As you can see SPY didn't go anywhere during the past month but four sectors, the financials, utilities, energy and consumer staples showed strength. On the downside health care and cyclicals where the weakest.