We noted
earlier this month that the Energy sector was far outperforming the rest of the market for most of 2014. Over the past few weeks the rest of the market has closed the gap. QTD Energy is still atop the leaderboard (and in 2nd place YTD), however, the dispersion between sectors has narrowed significantly. In fact, outside the Energy sector, it is clear that Counter-Cyclicals have been leading the market higher this year while Cyclicals have lagged behind. Below is performance table, on an equally-weighted basis, that highlights this fact. The five worst sectors are all cyclical sectors while four of the top five performers YTD are more "defensive" in nature.
This is in stark contrast to earnings growth expectations. Over the next four years, the five sectors with the highest earnings growth expectations are all cyclical sectors while only Financials fall in the bottom half. Is the market starting to realize that the growth expectations in Cyclicals are too high of a hurdle?
