• 511 days Will The ECB Continue To Hike Rates?
  • 511 days Forbes: Aramco Remains Largest Company In The Middle East
  • 513 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 913 days Could Crypto Overtake Traditional Investment?
  • 918 days Americans Still Quitting Jobs At Record Pace
  • 920 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 923 days Is The Dollar Too Strong?
  • 923 days Big Tech Disappoints Investors on Earnings Calls
  • 924 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 925 days China Is Quietly Trying To Distance Itself From Russia
  • 926 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 930 days Crypto Investors Won Big In 2021
  • 930 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 931 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 933 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 934 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 937 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 938 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 938 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 940 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Defensive Leadership: A Showstopper For Bull Market?

Consumer Discretionary Underperforming

The chart below shows the performance of consumer discretionary stocks relative to consumer staples. For most of 2013, discretionary sectors were leading defensive sectors (ratio was rising in 2013). 2014 has been a different story with more conservative stocks, such as Proctor and Gamble (PG), taking on a leadership role.

XLY:XLP Cyclicals/Cons. Staples NYSE + BATS


Is This A Major Red Flag For The Bull Market?

While there is no question defensive leadership speaks to a more tentative market, have the bulls ever remained in control under similar circumstances? This week's video provides some historical insight, along with how the Fed may be impacting the XLY vs. XLP ratio.


Video: Defensive Leadership: A Showstopper For Bulls?


Earnings Provide Some Insight

Dean Foods and Toll Brothers both provided some backing for the bullish case Monday by reporting better than expected profits and sales projections. From Bloomberg:

"The numbers in the third quarter showed a steady economy, we continue to have oil below $80, consumers feeling confident, low interest rates, and that's a combination that works well for stocks," Mark Kepner, an equity trader at Chatham, New Jersey-based Themis Trading LLC, said by phone. "Central banks have also been quite accommodative in what they've been saying and it seems to be working."


Investment Implications - The Weight Of The Evidence

If defensive leadership becomes a problem for the current rally, deterioration in the market's tolerance for risk will begin to spill over into other areas, something that we have not seen yet. In fact, the observable evidence continues to show improvement, allowing us to reduce exposure to conservative assets (TLT) while increasing exposure to equities (VOO). With a relatively light economic calendar this week, the market may focus on earnings in the United States and abroad.

 

Back to homepage

Leave a comment

Leave a comment