DEFENSIVE CONSUMER STAPLES ARE WEAKENING -- WHILE ECONOMICALLY SENSITIVE CONSUMER CYCLICALS ARE MARKET LEADERS -- CYCLICALS/STAPLES RATIO TURNS UP -- MARTIN MARIETTA AND VULCAN MATERIALS ARE HAVING A VERY STRONG DAY
CONSUMER STAPLES ARE WEAKENING... Defensive parts of the market are starting to weaken. That includes consumer staples. At the same time, money is flowing back into more economically sensitive stock groups like consumer discretionary stocks (more on that shortly). That's normally a good sign for the market. Chart 1 shows the Consumer Staples Sector SPDR (XLP) slipping below its 50 day average in late morning trading. Even more noticeable is the sharp drop in the XLP/S&P 500 relative strength ratio (red line) over the last couple of weeks. Safe haven assets rallied during the first quarter as the stock market stalled. That included utilities and REITs, Treasury bonds, gold, and the Japanese yen which are also weakening. That's only half of the story.
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Chart 1
CONSUMER CYCLICALS ARE MARKET LEADERS... Chart 2 shows the Consumer Discretionary Select SPDR (XLY) surging to a new record. More impressive is the sharp rise in the XLY/SPX ratio (green line) which achieved a bullish breakout in mid-April. These more economically-sensitive stocks usually outperform when investors are more optimistic on the stock market and the economy. Chart 3 shows an even more revealing chart which is consumer cyclicals divided by consumer staples. After surging higher after the November election, the XLY/XLP ratio corrected during the first quarter as investors turned more defensive. After bottoming in March, the ratio turned back up during April. That's usually a sign of more optimism.
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Chart 2
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Chart 3
BUILDING MATERIALS HAVE TURNED UP ... My April 1 message carried the headline: "Building Material Stocks May Also be Bottoming -- Marin Marietta and Vulcan Materials Find Support Near 200-Day Averages". I wrote that message to show that money was starting to flow back into stocks tied to construction and infrastructure spending. I'm coming back to those two stocks today because they're having a very strong day. Chart 4 shows Martin Marietta Materials (MLM) surging 7% to a near record high. Chart 5 shows Vulcan Materials (VMC) surging to a three-month high. Both relative strength lines (above charts) are jumping. That's giving a boost to industrials which are the day's strongest sector.
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Chart 4
