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“It must be the policy of the United States to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures.” – Harry Truman, 3/12/47
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Can we squeeze out a positive day in the market? The S&P 500 finished the day down 0.76% yesterday, but it almost seemed like a positive day in some ways. That’s how miserable the last three weeks have been for bulls! This morning, US futures were firmly in the green heading into the February CPI report. That report came in weaker than expected, providing a further boost- at least for now.
78 years ago today, President Harry Truman asked Congress to appropriate $400 million to provide economic, military, and political assistance to democratic countries facing the threat of communist forces. His proclamation set in motion the journey of the US on the path from isolationism to a leader on the global stage, taking an active role in pushing back against the growth of the Soviet Union during the Cold War. Whether the US became too active in global affairs in the ensuing eight decades is up for debate. However, whatever direction US foreign policy has headed over the last eighty years, it appears to be going the other way now.
Focusing more on the short-term, the S&P 500 peaked three weeks ago today. In the 14 trading days since then, the S&P 500 has declined 9.3%, and all eleven sectors have posted declines. On the downside, just three sectors – Communication Services, Technology, and Consumer Discretionary – are underperforming the S&P 500. Health Care has held up better than any other sector with a decline of less than 1%, but Real Estate and Consumer Staples have also held up relatively well.
With a decline of nearly 15%, the Consumer Discretionary sector has been the worst performing sector in the market, and the bulk of that decline has been the result of mega-cap stocks in the sector like Tesla (TSLA) and Amazon.com (AMZN). These declines have pushed the sector’s margin of underperformance versus the S&P 500 over the last three weeks to historical extremes.
The chart below shows the 15-day performance spread between the Consumer Discretionary sector and the S&P 500 since 1990. Just recently, it had underperformed the S&P 500 by over eight percentage points, which was an extreme reached just a handful of other times in the last 35 years. As extreme as the underperformance has been in the last three weeks, it has mostly been a reversal of the extreme outperformance the sector experienced late last year.
