Wednesday, October 29, 2008

Sector Performance: Before and After Recent Market Rally

A click on the chart above will show the S&P 500 Index (SPY) and 10 S&P 500 sectors, as they performed during the decline from 9/2/08 - 10/27/08 (blue bars), and as they performed over the rally of the last two trading sessions (red bars).

Note how some of the sectors that had been beaten up the worst--Materials (XLB), Energy (XLE), and Housing (XHB)--have bounced strongly during the last two trading sessions. Sectors that had held up better during the decline--Consumer Staples (XLP) and Health Care (XLV)--have bounced less over this recent rally.

Until I see solid evidence of follow through to this rally with solid breadth and positive money flows, I'm viewing the recent impressive rally as dominated by short covering, which enables the beaten down market segments to outperform those more defensive sectors.


Matthew said...

According to the Financial Times, the rally was due to the currency markets. The yen dropped in value, restarted the "carry trade" so that worldwide people switched from currencies to equities: (video link)

Michelle B said...

I respectfully disagree. Real buyers (contrasted to short covering) would buy the beaten down sectors and not the defensive sectors because all the bearish news could be baked in (at least for a few months long bear rally) and the defensive sector is no longer needed as defense. If you want to buy and hold, then that's a different story.