I don't believe I have ever seen so many of the nine major stock market sectors with such similar chart patterns, something resembling a hockey stick -- down and sideways.
Except for the the Financials, which are still trending lower, six of the remaining eight sectors, Basic Materials, Energy, Industrials, Staples, Tech, and Cyclicals, all are following this hockey stick formation to a greater or lesser degree. The two remaining sectors Utilities, and Health-care appear to have turned the corner and are attempting to form something resembling a spoon bottom.
Between the two, however, the one that looks like it has put in the most convincing bottom and is already in an uptrend is Health-care. The chart above is the daily graph over the last year of the Health-care ishare (XLV). For our discussion here, I am using it as a proxy for the industry. The chart shows a very believable bottom was formed during October and November and the sector has made an impressive series of higher highs and higher lows since then. XLV appears to be ready to move above the January 2009 highs, which could give it clear sailing back toward the breakdown in October.
Health-care's solid performance might make sense at first because of its defensive nature. However, when you take into consideration that none of us knows what the new Administration has in store for the sector, its strength is a bit of a surprise.
What Health-care has going for it is solid earnings growth. For companies reporting thus far, fourth quarter earnings have averaged over 6%. Compare this growth with the near 15% earnings loss for the average stock in the S&P 500, and the sector's performance begins to make more sense. I would add that dividend action in the group has also, on balance, been good.
I like both the Health-care and Utility sectors. In addition, we see great values in the Consumer Staples. In our minds, the greatest companies on earth are experiencing a 40% off sale, its hard not to be nibbling.
This blog is for information purposes only, please consult your own financial advisor. Clients and employees of DCM own stocks in the sectors I have discussed here.
