Sector signals

●US stocks started the New Year with a bearish hangover before rebounding

●Sector action may have implied investors were dumping “defensive” shares yesterday


An early -1.6% intraday selloff probably wasn’t what investors were hoping for on the first day of the trading year, but maybe all’s well that ends so-so.

Besides, “As the year turns” pointed out that the first day of the trading year has, more often than not, been a loser for the S&P 500 (SPX), so the fact that the SPX clawed its way slightly into the green makes it the exception rather than the rule. For the record, the second trading day of the year (today) has tended to be the strongest of the first five.

S&P 500 (SPX), 12/12/18–1/2/19. S&P 500 (SPX) price chart. Down early, up later.

Source: Power E*TRADE

But here’s an interesting (and possibly overlooked) aspect to yesterday’s market action: The weakness was concentrated in what are traditionally considered “defensive” sectors—real estate, utilities, and health care. Even when the SPX was still solidly in deep negative territory—that is, before traders had arguably turned more bullish on the day—traders were dumping these stocks at a faster pace than others.

In other words, yes, there was some selling taking place yesterday, especially early in the trading session, but most of it occurred in areas of the market investors tend to get into when they’re most worried about a downturn. To wit: Over the past three months, a period when the SPX fell nearly 15%, utilities and real estate were the two strongest sectors; health care was # 4.

Although you can’t attach too much significance to one day’s activity, sector action can sometimes help provide context for potentially confusing price action.

For additional insight into sector activity, check out E*TRADE’s new Monthly Sector Rotation analysis.

Market Mover Update: If poor economic data out of China helped trigger yesterday’s Asian equity bearishness, the big turnaround in crude oil may have contributed to the European-US stock rebound: February WTI crude oil futures (CLG9) reversed from being down more than 3% on the day to being up more than 4%, at one point hitting an eight-day high of $47.78/barrel.

Today’s numbers (all times ET): ADP Employment Report (8:15 a.m.), ISM Manufacturing Index (10 a.m.), Construction Spending (10 a.m.).


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