Energy Surge Relative to Industrials

Each day in our Sector Snapshot, we provide an update on each sector’s weighting within the S&P 500.  Given the astounding rally in Energy stocks, the sector has gone from a record low weighting of only 1.9% in November 2020 up to a high of 4.9% last week. That is back to levels seen in the summer of 2019, and it’s also a level consistent with what we saw in the late 1990s through the first few years of the 2000s. Of course, the larger a sector’s weighting, the more impact its moves have on the broader S&P 500.

Meanwhile, another traditionally cyclical group, the Industrials, has seen its weighting steadily decline. At only 7.76%, the current reading is only about 0.3 percentage points above the pandemic low in weight which also marked a record low going back to at least 1990.  Historically, Industrials have had less dramatic fluctuations in weight than Energy, but it has seen a consistent grind lower over the decades, reflecting the broader shift in the US economy from predominately goods to service-based.

Energy vs Industrials Stocks

In an earlier post, we noted how two of the biggest stocks in the Energy sector by market cap, Exxon Mobil (XOM) and Chevron (CVX), have seen explosive and unprecedentedly large moves higher over the past couple of years.  This is the first time these stocks have seen their market caps rise in any sort of a significant manner since the mid-2000s.  As shown below, the two now account for nearly three-quarters of a trillion dollars in market cap, surpassing the previous peak in late 2007. That accounts for roughly 44% of the total size of the S&P 500 Energy sector as well.

Below we compare the combined market caps of XOM and CVX to what have historically been two of the most prominent stocks in the Industrials sector: Boeing (BA) and General Electric (GE).  Right around 2000, these two stocks had a combined market cap of ~$650 billion.  Over the two decades since then, these two stocks have fallen from grace with their current market caps now totaling just $163.9 billion!  Relative to the market cap gains of Exxon Mobil and Chevron, the recent move has been nothing short of exponential as shown in the second chart below.  The only comparable period was in 2009 when both groups fell, but the Industrial names were hit much harder.

As we discussed in regards to Tech stocks now versus the Dot Com Peak in March of 2000 in last week’s Bespoke Report (pages 20 & 21), the big declines in the size of GE and BA as XOM and CVX rocket higher are yet more examples of the ebb and flow of market leadership.  Click here to learn more about Bespoke’s premium stock market research service.


Defensives Propping Up New Highs

The S&P 500 has fallen in four of the past five sessions continuing to pull back from its lower high, but surprisingly, the net percentage of the index hitting new 52-week highs actually saw one of the strongest readings of the year on Friday as we show in the chart from our Sector Snapshot below.  To cap off last week, a net 11% of S&P 500 stocks were at new 52-week highs; the highest reading since January 5th which was only a couple of days after the index’s last all-time high. Typically, we look at net new highs as a way to confirm moves in the broader market. In other words, it is viewed as better to see a larger number of stocks trading at new highs versus new lows. While net new highs are so far lower today, Fridays’ double-digit positive reading was unusually high for a down day.  Historically going back to 1990, the average net new high reading when the S&P 500 has been lower on the day has only been 1.6%. It was even a strong reading compared to the average for up days (4.77%) as well.

52-Week Highs

As for how new highs have held up relatively well as the broader market has pulled back, defensive sectors—Consumer Staples, Health Care, Utilities, and Real Estate—are almost entirely the ones to thank.  To illustrate this, below we show the daily percentage of S&P 500 stocks hitting new highs that are from one of the four defensive sectors just mentioned.  There is plenty of precedent in the past several years for these four sectors to account for all of a day’s new highs including several days in late January and early February. At the high last Wednesday, over 90% of S&P 500’s new highs came from defensive sectors. On a 50-DMA basis, this reading is now at the highest level since the spring of 2020.

Defensive Sector 52-Week Highs

In other words, defensives have been a notable pocket of strength recently. As for just how large of a run they have been on, in the charts below we show the rolling one month change of these sectors going back to 1990 (2001 for Real Estate).  While the rates of change have peaked, Health Care and Utilities are up double digits in the past month while Consumer Staples and Real Estate have risen high single-digit percentage points.  For all sectors except for Real Estate, those rallies rank in the top 3% of all monthly moves since 1990 and Real Estates is still in the top decile of all monthly moves going back to 2001.   Click here to view Bespoke’s premium membership options.

Defensives Propping Up The Market