Amid the turbulence, confusion and doom-and-gloom headlines, it’s sometimes difficult to see where real opportunity lies. Since the recent past often gives us hints about future price action, it’s instructive to see how the sectors of the S&P 500 have performed since the October 2007 top — and how far below their all-time highs others remain.
To analyze performance of the S&P 500 sectors from Oct. 11, 2007 (the date of the all-time high on the S&P 500) to today, Oct. 16, 2012, I used the Select Sector SPDR ETF series.
Click to EnlargeThe illustration at right is a simple price chart of the nine SPDRs as well as the S&P 500, represented by the SPDR S&P 500 (NYSE:SPY). My main takeaway is that most of the sectors are clustered together and moving well toward (or through) their October 2007 levels. The one big exception here is the financial sector, which remains far below its October 2007 levels.
The second chart displays more of the same but now measures each sector’s percentage change from October 2007 to the present.
Click to EnlargeWe note that the industrials, materials, financials and utilities sectors remain below their October 2007 highs — financials (as tracked by XLF) are bringing up the rear, down 55% — while the rest of the sectors have actually surpassed their October 2007 levels. The very best performance of the S&P 500 sectors came from the consumer staples group (XLP), which is up an astonishing 27.84% over the past five years.
Who says you can’t make money in a bear market?
To make this all a little more visually pleasing, here is the leaderboard of S&P 500 sector performance from Oct. 11, 2007, to today.
So there you have it, consumer staples came in first while financials are badly lagging.
Where do we go from here? The market structure and current environment remains very supportive of equity prices, so I’m still looking for upside into year-end.
In terms of sector performance into year-end, I am staying away from both of the outliers (consumer staples and financials) and favor buying the middle of the pack on the charts and leaderboard above. Really, I’m looking to “buy the market” — which is why I’m long the SPY — and the names in the middle of the pack most closely track the performance of the broader market.