Today’s hero becomes tomorrows zero.

I’ve referred to the market over the past few years as a “stealth” market. That is, one that sees money rotate from winning stocks into depressed stocks, and vice-versa. Rotation from sector to sector is also becoming faster and more pronounced of late. It is for this reason that I believe in truly active management of your portfolio –whether you do it for yourself, or you hire an active (i.e. NOT buy and hold!) manager to do it for you. I’ve created a little mantra that may help you remember to rotate your sectors in markets as we move forward:

“Today’s hero becomes tomorrows zero.”

I’d like to suggest that there is a high potential for continued rotation from the current favorites (“hero’s”) of US technology, Industrials, and Financial stocks into other sectors. At this time, those sectors have been the place to be. Interestingly, the Financials on both sides of the border have already begun to underperform. Time doesn’t stand still, and money never sleeps. I’ll be watching for signs of a change in trend and moneyflow into the currently flat or losing sectors and stocks (the  “zero’s”).

Below, I’d like to highlight the past 3 years of rotation in one year increments from May to May. I could have easily gone back further to illustrate my point, but 3 years of data will give you the general idea. I’ve used the Stockcharts.com “Prefchart” feature to show performance of the 9 major S&P sectors.

A brief history of time, space, and sector rotation.

May 2014 – May 2015

As you will see on this chart, the leading sectors in that time period were Healthcare (up almost 18%) and Cyclicals (up 8%). The underperformers were Energy (down 25 %!) and Industrials (down 4.5%). Materials were down 4% as well.

May 2015 – May 2016

Very different than the 2014 – 2015 period, it was Consumer Staples (up 12%) and Utilities (up 15%!) that lead the charge in this rotation. Cyclicals continued to do well (up 5.7%) while materials were down another 4.7%. Energy repeated its lousy performance with another horrid loss of 11.7%. Of interest was the abrupt reversal of Healthcare from top dog in the prior period to a 2.6% loss over this 12 month period. I’d also like you to take note that in this period, Technology (up 4%), Industrials (up 2.8%) and Financials (down 0.8%) were relatively uninspired performers over this 12month period.

May 2016 to May 2017

What a difference a year makes. On this rotation, we saw Technology (up 16.6%), Financials (up 10%) and Industrials (up 7.3%) as the movers and shakers. Remember how Healthcare was the best place to be just 2 years prior, and Staples and Utilities were the leading sectors in the last 12 month period? Well, guess where they are now? Staples are down 7.4%, Utilities are down 2.5% and Healthcare is sucking wind at a 6.6% loss. Yesterday’s hero, once again becoming todays zero.

Energy…yesterday and today’s “zero”

I believe that oil, and energy related stocks, are in the process of basing. They are not buys at this time, and may not be for another couple of years. They are merely “watch” candidates. At this time- oil is trying to put in a bottom. When will it break out? You and I can’t say. It’s much too early to make such a prediction. Time will tell. A break of $62 would indicate a new bullish phase for this commodity and a return to $90. That’s a long way off. But, things change quickly these days. Keep an eye on oil.

Staples – a “zero” that’s becoming a “hero”

The consumer staples sector in the US contains such stalwarts as Proctor and Gamble, Philip Morris, Coca Cola and Colgate Palmolive. In Canada, companies like Loblaw, Alimentation Couche Tard, and Metro are considered staples. The chart looks good for both the SPDR US Staples ETF (XLP-US).  A Canadian ETF that nicely represents the Canadian stocks is the iShares Consumer Staples ETF (XST-T). As an added bonus, Consumer Staples are considered seasonally attractive from May to October.

Heathcare – still a “zero”, but watch for a breakout

Great healthcare stocks like Johnson and Johnson, Pfizer, United Healthgroup and Gilead Sciences are represented in this group. Better to play the US side if you enter this sector, as the Canadian side is just too small. The benchmark ETF SPDR Healthcare (XLV-US) has been pretty flat since 2014. But a breakout through $76/ share might indicate a rotation back into that sector. Keep an eye on this one – its pretty close to that price as I write this blog.

Keith on BNN

I will be on BNN’s call-in show MarketCall on Monday June 12^th from 1:00pm to 2:00pm. Tune in to BNN to catch me live on BNN’s premier call-in show, where viewers like yourself can ask my technical opinion on the stocks you hold.

Call in with questions during the show’s live taping between 1:00 and 2:00 pm. The toll free number for questions is 1 855 326 6266. You can also email questions ahead of time to [email protected] – it’s important that you specify the question is for me.