Many Sectors/Indexes Lag the S&P 500

Many Sectors/Indexes Lag the S&P 500

Posted on July 15, 2019

Market State 1- The S&P 500 is currently in Market State 1, meaning long-term, volatility, and short-term supply & demand indicators are positive.  85% of all new market highs occur while in Market State 1. 

The Market State indicators are taken using the S&P 500, which measures the largest US stocks.  Looking at Small and Midcap stocks, neither one has reached the same high as Large US stocks.  In fact, each one of these indices has yet to surpass its high from May.  Additionally, international indexes, such as the EAFE and Emerging Markets, are nowhere near their old January 2018 highs.  So, while the S&P 500 has had strong performance, it has been perhaps the strongest index globally.  Many other indices have not seen the same recent success. 
Canterbury Volatility Index- CVI 56- Volatility, as measured using the Canterbury Volatility Index (CVI) continues to decline.  Volatility has been steadily declining since the market correction in December, with a short volatility increase occurring in May in conjunction with a market pullback.  While S&P 500 volatility is low/decreasing, here are other CVI levels for various indices:

Emerging Markets: CVI 73
Mid Caps (Mid Cap 400): CVI 69
Small Caps (Russell 2000): CVI 76
The S&P 500 may have broken out above its September 2018 high, but this has not been the case for most stock indices. S&P small cap stocks and mid cap stocks lag in terms of breaking out to a new high since September.

Source: AIQ Systems

 Source: AIQ Systems

Sector Rankings
If we look at the rankings of the individual sectors within the S&P 500, we can see that the top-rated S&P 500 sectors, according to Canterbury’s Volatility-Weighted-Relative-Strength (VWRS ranking) system, have all broken out to new highs.  However, 5 of these sectors (half) have yet to surpass their highs from last fall. 
When we add in the S&P 500 index to the rankings (each of these sectors make up a part of the index), the S&P 500 is ranked 3rd, suggesting that it could be getting carried to new highs by a heavier weighted sectors (like Technology and Discretionary).  Each sector, with the exception of Energy, does currently exhibit bullish market characteristics, but is not experiencing the same rally the S&P 500 is experiencing.
S&P Sector VWRS Ranking Surpassed Fall High?
Discretionary 1 Yes
Technology 2 Yes
S&P 500 3 Yes
Staples 4 Yes
Utilities 5 Yes
Real Estate 6 Yes
Industrials 7 No
Communications 8 No
Basic Materials 9 No
Financials 10 No
Healthcare 11 No
Energy 12 No
Bottom Line
The S&P 500 index is currently in a bull market, as most US equities are.  The difference is that the S&P 500 has been one of the strongest performers this year.  Small cap and mid cap stocks have lagged in terms of putting a new all time high.  International stocks have especially been weak.

According to Canterbury’s VWRS sector rankings, discretionary and technology, followed by staples and utilities have shown leadership recently.  The S&P 500 would currently rank 3rd among the S&P sectors, meaning that the heavier weighted sectors are carrying much of the strong performance on the market.  This is not to say that many stocks are not participating in the rally; that would be false. Many of the S&P 500 sectors do have low risk characteristics but are just not currently at the same rally levels the S&P 500 has been at.

Investing is a lifetime endeavor.  In order to achieve the benefits of long-term compounded returns, Canterbury utilizes an Adaptive Portfolio Strategy.  An adaptive portfolio strategy can rotate to adjust to everchanging market environments and invest in sectors or asset classes that show the right bullish characteristics to navigate any market environment- Bull or Bear.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.