Our Daily Sector Snapshot does a great job of consolidating key fundamental, technical, and breadth info for the eleven major S&P 500 sectors.  Our trading range charts show the path of each sector over the last year with overbought and oversold levels overlaid with the sector’s price and 50-day moving average.  We also include relative strength charts which show how the sector has been performing versus the S&P 500.  When the relative strength line is rising, the sector is outperforming the S&P and vice versa for a falling line.

Below we have pulled both the trading range charts and the relative strength charts from our Daily Sector Snapshot for each sector.  Most sectors have been performing well on an absolute basis lately and are trending nicely higher, but in many cases the sector relative strength charts tell a different story.

Both the Communication Services and Consumer Discretionary sectors are in uptrends and have broken out to new highs recently, but their relative strength versus the S&P 500 leaves a lot to be desired.  Communication Services has merely been performing inline with the S&P over the last year, while Consumer Discretionary fell off a cliff versus the S&P in the early part of Q4 2019 and has just started to recover.

Consumer Staples performed well versus the S&P over the first two-thirds of 2019, but performance versus the market plummeted from late summer through year-end as the yield curve un-inverted and investors shifted into Tech, Health Care, and Financials.  Energy is the only sector that has not been in an uptrend for the better part of the last year, and thus its relative strength chart has basically been a straight path lower.  More recently, the slope of Energy’s relative strength decline has started to flatten, and we’ve seen some outperformance lately as geopolitical tensions heat up.  Even with the improvement, though, the sector still has a lot of work to do to turn around versus the rest of the market.

The Financial sector has performed exactly in-line with the S&P 500 over the last year, but things looked a lot worse in mid-2019 when the yield curve was inverted.  Once rates started to tick higher again and the slope of the yield curve turned positive in Q4 2019, the Financials really took off.  That shifted the sector’s relative strength from negative to positive, but over the last few weeks we’ve seen a slight downtick as the Financials have traded more sideways.

The Health Care sector has been on a tear for the last three months, but it hasn’t been enough to shift its relative strength back into positive territory versus the S&P over the last year.  The rise of Elizabeth Warren’s poll numbers held back Health Care in 2019, and once Warren’s numbers started to dip, the sector took off.  That’s the reason you see Health Care’s relative strength really picking up since making a low last October.

The Industrials sector broke out to new highs recently after trading sideways for most of 2019, but its relative strength has been mostly trending lower since peaking in the first quarter last year.  Materials has seen its relative strength completely collapse to start 2020.  While the S&P is up 1.4% year-to-date, the Materials sector has fallen 3%.  That type of underperformance does major damage on a relative strength basis.

Real Estate (REITs) had very positive relative strength for most of 2019, but this rate-sensitive sector has struggled mightily over the last few months as the yield curve has un-inverted.  The price chart for Real Estate has broken its uptrend and is struggling to hang onto its 50-day moving average.  With the S&P in a steep uptrend, a near-term downtrend for a sector causes its relative strength chart to collapse.

Remarkably, the Technology sector is the only one with an upward sloping relative strength chart that’s solidly in positive territory.  This tells you that Tech has been the main (and only) area of true outperformance in the US equity space over the last year.  At some point this is sure to reverse, and when it does, the S&P is going to struggle given Tech’s weighting in the index.

Relative strength for Utilities looks very similar to that of other defensives like Consumer Staples and Real Estate.  You saw strong outperformance for Utilities at the start of Q4 2019, but it has given it all back and then some since then.  To see our Daily Sector Snapshot and track these charts on a regular basis, start a two-week free trial to Bespoke Premium.  You’ll unlock additional investment research like our Morning Lineup, Model Portfolios, and Chart of the Day as well.

The S&P 500 is currently up 1.4% year-to-date, but as shown below, only three sectors are outperforming the index — Technology, Communication Services, and Industrials.  Given Tech’s massive weighting of more than 23% in the S&P, its 3.2% YTD gain has a big impact on the overall market’s gain.  Tech’s huge weighting is also the reason why eight of eleven sectors are underperforming the S&P.

We continue to see elevated P/E ratios.  The S&P’s trailing 12-month P/E is currently 21.9, while Real Estate is at 49.9, Technology is up to 27.5, and Consumer Discretionary is at 25.3.  The only sector with a P/E ratio below 19 is Financials at 14.5.

Absolute levels of valuations like the chart above don’t tell you much.  The chart below shows where valuations stand for sectors relative to levels seen over the last ten years.  As shown, the S&P 500’s current P/E ratio is higher than 97.9% of all other P/E readings seen for the index over the last ten years.  That’s high!  And three sectors have valuations in the 98th percentile or higher, with Technology at the top at 100%.  Over the last ten years, Tech’s P/E ratio has never been higher.

The only sector where valuations are currently “average” compared to the last ten years is Financials.  Sign up for Bespoke Premium and get half off your first three months.  Click here for this special offer.

By posting this, we’re probably jinxing it, but the DJIA is on the verge of topping another 1,000 point threshold less than two months after first topping 28,000.  While the media makes a big deal of each of these thresholds, we would note that the road to 29,000 from 28,000 is only 3.4%.  That’s hardly a momentous move.  Since Trump became President in January 2017, though, 29,000 would be the 10th 1,000-point threshold that the DJIA would cross under his watch.

The table below lists the date that the DJIA first crossed each 1,000-point threshold throughout history.  For each level, we also include the number of calendar days that elapsed between the first cross of that threshold and the prior one, how large a percentage gain that the 1000-point threshold represents versus the prior one, and then how many times the DJIA has crossed each threshold (on a closing basis) both to the upside and downside.  One of the most notable aspects of the table in our view is that even though each threshold is a smaller percentage than the prior one, there have been so few crosses (above and below) of most of the thresholds since the Dow first crossed 19,000 after the 2016 election.  19,000 was only crossed once, and six of the other nine thresholds since then haven’t been crossed more than ten times.  That’s indicative of a market that has been rallying and not looking back.  Start a two-week free trial to Bespoke Institutional for full access to our research platform.

Although the stock is down today following a number of analyst downgrades, Tesla (TSLA) has seen a significant run-up over the past several months and between record deliveries that topped expectations and announcing the introduction of its cars and Gigafactory in China the company has already had an eventful 2020.  Since the start of the fourth quarter of 2019, TSLA has far outperformed other US automakers.  In fact, while Ford (F) is only up 0.49% and General Motors (GM) is down 7.66%, Tesla has doubled. Yesterday, the stock nearly joined a baker’s dozen of other S&P 500 stocks priced at $500 or more.

Those are not the only milestones though. About one month ago, we had highlighted that the market cap of TSLA had distanced itself from those of Ford (F) and GM (GM) by some of the widest margins on record. With the stock surging further since then, TSLA is now valued at $86.9 billion. That makes the company not only the largest US automaker by market cap, but it is also about $1 billion larger than the combined market caps of Ford ($36.5 bn) and GM ($49.5 bn). Of other global automakers, only Volkswagen has a larger dollar-adjusted market cap of $98.26 billion while TSLA is still dwarfed by Toyota which has a market cap of $226.96 bn. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Over the past week, mounting geopolitical tensions have kept markets on their toes. As of today, equity markets have recovered whatever losses there were, but sentiment has still taken a hit.  The percentage of bullish investors in the weekly AAII survey has fallen for a third straight week down to 33.07%.  This is the lowest level of bullish sentiment since the first week of December when 31.72% of respondents were bullish.  Granted, these declines have not brought bullish sentiment to any sort of extremely low level. In fact, it is now just about in line with the average reading of the past year, 33.41%. If anything, this move appears to be mean reversion as bullish sentiment headed into 2020 had actually gotten pretty extended as we had highlighted in our Pros and Cons report last week.

While most of the decline in bullish sentiment in last week’s survey went toward neutral sentiment, this week’s results showed that investors were more firmly bearish borrowing from both the bullish and neutral camps.  Nearly 30% of investors reported as bearish this week which was an 8.01 percentage point increase from last week.   That marked the third-largest one week jump in bearish sentiment of the past year.  Granted, this increase was also about a third and half the size, respectively, of the past two larger increases of 24.14 percentage points in August and 16.11 percentage points in May. Despite the relatively large move higher, bearish sentiment is now right in line with its average of 30.3% over the past year.

As previously mentioned, the gain in bearish sentiment took from those previously reporting as neutral. After reaching 40.91% last week, the highest level since Apri, neutral sentiment has moderated falling down to 37.04%.Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Initial jobless claims for this week were forecasted to come in slightly lower at 220K from last week’s print of 222K. The actual decline was even larger  with claims coming in at 214K and last week’s number was revised up by 1K. Claims have now essentially reversed the massive spike observed around Thanksgiving and are back within the range that has been in place for most of the past year.  Although we were hesitant to take November’s spike up to 252K at face value (which have still not experienced any revision), the four-week streak of declines from these levels has marked the longest streak of weeks with consecutive declines since a five-week streak that came to a close in April of last year.  Additionally, the 38K decline off of that 252K peak has marked the largest four week decline for claims since September of 2017 when they had fallen 43K from 300K to 257K (second chart below).

Although the four-week moving average is helpful in smoothing out the week to week fluctuations in claims data, the outlier of 252K several weeks ago has had an effect on elevating the average in recent weeks.  This week, that high print has rolled off the average, and the moving average has finally declined week-over-week for the first time since November.  After reaching a 52-week high of 233.5K last week, the moving average has fallen 9.5k to 224K.  That is the largest one week decline in the moving average since September of 2017 when it had fallen 10.75K.  While that is a drastic improvement from where things have been, the average is still somewhat elevated relative to where it has been over the past year.

The non-seasonally adjusted data is echoing this as this week’s print shows a still strong labor market.  The first or second week of the year has marked the seasonal peak for non-adjusted claims just about every year of the past two decades.  So while claims by this measure rose to 335.2K due to seasonal factors, and assuming a higher peak does not get put in place next week, this year’s high would be 15.7K lower than last year’s peak of 350.9K. Although this isn’t as much of an improvement as we’ve seen in prior years (second chart), we’re working with a much lower base now than we were in years past. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.