US Equity Leadership (Still) Hasn’t Changed

We mentioned two weeks ago how equity performance has flip-flopped in the second quarter and how asset prices are most likely just in a counter-trend rally. Since then, others have picked up on this theme with a lot of folks calling for higher bond yields in particular (we aren’t so sure). If equity markets are in the process of a trend change, one would expect leadership to change as well. As we will show in the charts below, this doesn’t look to be happening from a relative performance perspective in the US. All data is in USD, on an equal-weighted basis and as of 5/8/2015 close.

Over the past four years, US health care has dominated equity leadership. It is up over 227% while the second best performing sector, consumer discretionary, is up only 108%. This may be a surprise to many but YTD US health care stocks are still leading the way as they have gained 12% in 2015. The laggard over the past four years, energy, has picked up in 2015 and especially in the second quarter. Utilities may soon take over as the worst performing sector over the past four years.

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Of the top three stocks in health care that we track and have four years of history for, all are still in significant uptrends. Gilead is looking a little shaky but has not yet begun to underperform the MSCI ACWI in any significant way.

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In the consumer discretionary sector, the top three performers again remain in a solid uptrend. Tesla recently tested a support line but positively bounced off of it. These “high fliers” most likely need to begin to considerably underperform to signal any major trend change.

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Consumer staples have been the third best performer over the past four years but is only marginally higher YTD. Again, however, we don’t see any trend change for the leaders over the past four years on a relative performance basis.

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Now lets flip our focus and look at a few of the worst performers. It would make sense that if this was a true trend change some of the worst performers of the bull market should be outperforming. Unfortunately for these stocks, this rally in the second quarter just looks like bounce in an otherwise downward trend. In the case of Whiting Petroleum, it failed right at the downtrend line. This stock could be a bellwether in a sense for the energy industry if it can fight through the downtrend line and begin to establish a base.

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Lastly, the three absolute worst performers over the past four years (the three energy stocks above are numbers 4th, 5th, and 7th worst) are Avon Products, Freeport-McMoRan, and Joy Global. Even with the benefit of a pretty good bounce over the past month (at least for Freeport-McMoRan), these stocks are still stuck in their significant downtrends.

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