Market Pulse: Is the market topping? No
Last Friday the Wall Street Journal listed the best and worst performing S&P 500 sectors right before bull market tops. The sectors were examined during the three months prior to every bull market top since 1972.
What were the results and what do they mean today? Read on.
The three best performing sectors prior to major market tops are Consumer Discretionary, Consumer Staples, and Health Care.
All rose about 10 percent in the three months prior to major market tops. The worst performers were Energy and Utilities, which rose about 4 percent.
Is this showing an approaching major market top today? Not so fast. The sectors that typically perform best before market tops are performing badly now, and the sectors that typically lag as a market is topping are the best performers now. Here are the details:
This year’s best performing sector by a long shot is Utilities, with an 11 percent gain. The second best performing sector is Energy, which is up 5 percent. This year’s worst performing sector is Consumer Discretionary, which is down 4.6 percent.
The 11-percent advance in Utilities is most interesting. The year began with a near universal opinion that interest rates would rise and most every analyst recommended avoiding utilities.
When there is nearly universal opinion, bet against it. That’s how Wall Street works and my Reduced Risk Income account clients have benefited from large utility holdings. Readers of this column also know that Energy is a favorite sector (see A Game Changer, February 6, 2014).
Needless to say, we are off to a good start this year for many clients.
So don’t be distracted by analysts who appear on financial shows or by Janet Yellen’s every word.
It’s still a bull market because the sectors that do well at market tops are lagging and the sectors that underperform at market tops are leading. I expect better days ahead.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.