Below are relative strength charts (vs. the S&P 500) for the Technology and Utilities sectors. In the chart, when the line is rising, the sector is outperforming the S&P 500, and vice versa for a falling line. In each chart we provide dots for days that the FOMC made a rate decision. Blue dots are days when the Fed left rates unchanged, while red dots are days when the Fed hiked rates.
While the Fed kept rates unchanged at its most recent meeting, it marked a key turning point for the cyclical Tech sector and the defensive Utilities sector. Since the last FOMC meeting, Tech has seen its relative strength plummet as investors have shifted quite dramatically into defensives like Utilities.
The rally for Utilities and decline for Technology have done a number on valuations for the two sectors, to the point where their trailing 12-month P/E ratios are nearly the same. Tech’s P/E currently stands at 20.52, well below the reading near 24 it had in late 2018. Utilities has seen its P/E balloon above 20 up to 20.10 as of this morning, which is nearly 5 points higher than it was at the end of 2018. When a no-growth sector like Utilities has a P/E that’s similar to a growth-oriented sector like Tech, it doesn’t say much about the confidence of investors.