Thursday's Market Minute: Sector Winners & Losers: Cyclicals Surge

Equity indices are making new all-time highs, but the gains are not equally spread across industries; there are clear favorites and laggards when examining the major sector ETFs and indices. Since the low point of the pandemic selloff on March 23, the outperformers surged upward and include Consumer Discretionary (XLY, +94%), Transportation ($DJT, +91%), and Technology (XLK, +91%). The underperformers since the same date include Consumer Staples (XLP, +35%), Utilities (XLU, +37%), and Healthcare (XLV, +55%).

These groups largely fall in line with the historical view of the dynamic between cyclical and defensive sectors. The rise of cyclical sectors like XLY and XLK suggests the economy could be strengthening, while relative weakness in defensive sectors like XLP and XLU bolsters this idea and also suggests a risk-on mentality among market participants. Looking more closely, XLK and XLY show uptrends as they’ve been making new highs while also making higher lows.

Transportation tells a slightly different story, as $DJT also made new highs on Tuesday but recently dipped below its Jan. 4 intraday lows. Meanwhile, XLU and XLP have both been making lower highs and lower lows since November. Healthcare looks a little stronger and has been trending upward, but this is likely fueled in part by Covid-19. Taken overall, this type of rotation typically would be viewed as the start of an expansion cycle. Going by the historical frameworks, the next sectors to shine would be Industrials, Materials, and Energy.

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