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Sector Trends...

A lot has been made lately about the crush of selling in interest rate sensitive sectors (see below) and for good reason.  The five sectors highlighted below have an average excess negative return to the S&P of more than -14% over the last three months... a period during which the S&P already had a return of -1.2%.


Much of the performance in energy related sectors can be attributed to supply/demand rebalancings... while volatility in Asian equity and global high yield markets has prompted many investors to move out of - and begin to bet against - previously high performing natural resource and basic material sectors.

Yet, amidst all of the selling in these sectors, the broader US equity market has been able to maintain a relative calm.  For how long that calm lasts is up for debate and I've made my position clear as to which direction I see equities moving in the next 6 months. 

Regardless of what the future holds, the facts are self-evident that in the here-and-now other sectors have carried the load of the broader market.  Perhaps in almost perfect negative correlation to falling commodity and resource prices, consumer related portions of the economy are gaining favor and flourishing. 

Airlines have seen a resurgence of late stimulated by cheaper fuel prices... AAL recently reported its most profitable quarter in the company's history.  ALK and JBLU have become hedge fund darlings and are both surging in recent weeks.

Casual dining and fast food are also benefiting from lower input costs.  CAKE, CMG and SBUX are all in either positive trend our breakout technical patters.

Consumer discretionary names NKE, AMZN, UA and MNST are also in bullish technical patterns with seemingly more upside ahead of them.

The downside to all of this good news is that consumer related companies are eventually going to exhaust the bottom-line benefits of lower input prices.  After AAL reported its record breaking earnings, the stock fell on reports of increased revenue pressure resulting from peer pricing competition.  I don't believe that the US consumer can - or is willing to - spend enough to stimulate the equity market to break out of the early stages of what looks like a technical correction.


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