We’re seven trading days into 2020, and so far the market has been behaving a lot like it did in 2019.  Below we have broken up the S&P 500 into deciles (10 groups of 50 stocks each) based on stock performance in 2019.  Decile one contains the 50 stocks that performed the best in 2019, while decile ten contains the 50 stocks that performed the worst in 2019.  The 50 best-performing stocks last year are up the most on average so far in 2020 as well.  Decile two has been the second-best decile so far this year, while decile three has been the third-best.

On the bottom end of the spectrum, the 50 worst-performing stocks in 2019 have actually bounced with an average YTD gain of 0.70%.  But the 2nd and 3rd worst performing deciles in 2019 have averaged pretty steep losses so far this year. So, while investors have been sticking with the winners so far, they’ve also been doing a little bit of dumpster diving as well.

Market cap has seemingly been the most important factor in terms of performance so far this year.  The 50 largest stocks in the S&P are up the most this year with an average gain of 1.22%.  The next 50 stocks are up the second most with an average gain of 1.04%, and so on and so forth.  The 50 smallest stocks in the S&P are down an average of 1.41%.  Only deciles 5 and 6 are out of order or else there would be a perfectly uniform relationship between market cap and YTD performance.  The larger, the better so far in 2020.  To read Bespoke’s most actionable stock market research, start a two-week free trial to Bespoke Premium.  You’ll unlock our most popular reports like our Morning Lineup, Model Portfolios, and Chart of the Day.

Crude oil is just about as popular or maybe even less popular than tobacco these days.  Sure, there was a brief spike in prices following the US drone strike on Iranian general Soleimani last Thursday night, but ever since then, crude oil has done nothing but trade lower.  Just the fact that crude only managed to rally 3% in the lead up to what many thought to be a full-blown war with Iran shows just how out of favor crude is.  This isn’t the first time crude hasn’t been able to hold onto gains either.  As noted earlier this week, besides the last week, there have been two other periods of heightened tensions between the US and Iran over the last year where one would have expected prices to rally, but instead they sold-off.

When a stock consistently opens at one price and then closes lower than it opened, it’s considered a negative as it signals that investors are selling into strength.  Applying that logic to crude oil confirms just how out of favor it has become.  This week alone, the daily closing price has been lower than its open on all five days.  The chart below shows daily streaks where crude oil closed below its opening price going back to the start of 2009. While the current five-day streak isn’t anything to write home about, we would note that even before this past week’s tensions in the Middle East, in late September/early October there was a streak of 13 trading days where the commodity closed lower than it opened, and that was the longest losing streak since at least the early 1980s! Before that, there was another streak of 7 trading days in July.  In other words, two of the five longest streaks since 2009 where crude oil closed below its open both occurred in the last six months.  Looking for more from Bespoke? Start a two-week free trial to Bespoke Premium and receive instant access to our best research today. 

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.