“Those four indicators are based on the performance of sectors that, prior to past market tops, either led or lagged the overall market. According to a study conducted by Ned Davis Research of returns over the last three months of each stock bull market in the U.S. since the early 1970s, two sectors stood out as usually leading the market: Consumer Discretionary and Consumer Staples.
Two other sectors, in contrast, typically lagged the market prior to those tops: Financials and Utilities.
The accompanying table, courtesy of FactSet, shows where we currently stand according to these four indicators.
| Performance over last three months | |
| S&P 500 Index | 2.24% |
| Sectors that typically lead the market prior to tops: | |
| Consumer Discretionary | 5.82% |
| Consumer Staples | 0.44% |
| Sectors that typically lag the market prior to tops: | |
| Financials | 7.26% |
| Utilities | -2.70% |
A mixed picture, to be sure.
However, in my opinion, too much should not be made of the two sectors whose recent performance appear to be inconsistent with an imminent top.
Consider first the Consumer Staples sector, which has lagged the S&P 500 indexSPX +0.02% over the last three months. This is a sector that, prior to past market tops, has usually led the market.
It turns out, however, that its market-lagging performance over the last three months can be traced to the final weeks of 2012. Might it be that this sector was artificially depressed by anxiety induced by the fiscal-cliff negotiations? This certainly seems plausible, since the consumer sentiment surveys covering the latter weeks of 2012 showed a marked pullback in consumer confidence….”
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