Wednesday, December 5, 2012

S&P 500 Energy & Materials

Among the S&P 500 sectors, Energy’s hay days were during the 1970s, when oil prices soared during the oil crises of 1973 and 1979. This sector and the Materials sector were volatile market performers during the 1980s and mostly underperformers during the 1990s, when IT massively outperformed all the other sectors, especially these two.

During the previous decade’s bull market, these two sectors significantly outperformed the others. Driving them higher both in absolute and relative terms was the perception that the emergence of the emerging economies, led by the BRICs (and especially China), set the stage for a commodities “super-cycle.” Their underperformance during the current bull market suggests that they might not be so supercharged anymore as structural debt problems around the world weigh on global economic growth.

Going over the fiscal cliff would certainly weigh heavily on these two sectors next year. In any event, the prospects for global economic growth remain subdued, so they are likely to remain underperformers for a while in any case.

Today Morning Briefing: Relative Performance. (1) Sorting out the patterns. (2) Consumer Discretionary stocks tend to be early cycle outperformers, but may continue to do so later this time. (3) Not too many outperformers among Consumer Staples. (4) Health Care can be a late cycle bloomer. (5) Financials should outperform, but may remain on rollercoaster in cliff scenario. (6) Energy and Materials unlikely to outperform if global growth remains weak. (7) Fracking should continue to inflate Industrial Gases and Specialty Chemicals. (8) Industrials may be market performers for a while. (9) New technologies may be commoditizing IT and weighing on sector’s stocks. (More for subscribers.)

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