OFFENSIVE SECTORS TAKE A HIT

Offensive sectors took a hard hit in January. Offensive sectors include technology, consumer discretionary, industrials and finance. I call them the offensive sectors because their participation is key to a bull market. Technology represents growth and the appetite for risk. Consumer discretionary is the most economically sensitive sector. Industrials represent big global manufacturers like GE, United Tech, 3M, Boeing and Caterpiller. Finance represents the banking system. The first chart shows the technology SPDR (XLK) as the weakest of the offensive sectors. In fact, it is the weakest all sectors in 2010. Relative weakness in technology reflects risk aversion and a preference for safety (defense). The industrials sector is holding up the best of the four (thanks to a gain from GE on Friday). Healthcare, utilities and consumer staples make up the defensive sectors shown in the second chart. These are the sectors investors turn to in times of uncertainty. Utilities are down sharply. Consumer staples are also down, but not near as much as technology or consumer discretionary. The healthcare sector remains the star performer for the year, and the only sector showing a year-to-date gain.

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