Whenever you talk about whic sectors of the market are working, market cap is one aspect that is often overlooked. In the charts below, we highlight the relative strength of each sector to its corresponding index across all three market cap levels (S&P 500 large cap, S&P 400 mid cap and S&P 600 small cap). Rising lines indicate that the sector is outperforming its index while a falling line indicates that the sector is underperforming. As you will see in the charts, most of the time the sector's relative strength moves in the same direction across all three market cap levels, but there are times when they diverge, and these divergences can be a sign of a turn.
In the consumer sectors, large cap Discretionary stocks have continued to outperform their peer index, while mid and small caps are trading roughly inline. In the Staples sector, it is mid caps that are outperforming by the largest percentage while large caps are not far behind. Meanwhile small cap Consumer Staples are still outperforming the small cap index but not by nearly as much.
In the Energy sector, it doesn't matter what market cap the stock is, as they are all underperforming their peer indices. Large caps are holding up the best, but outside of a few pockets of strength within individual names, Energy sector stocks are underperforming across the board.
The three Financial sectors are all either trading inline with or slightly ahead of the market over the last twelve months, but they definitely took different paths getting there. While they underperformed by a wide margin last Summer, they have seen a big rebound since last Fall. Small and mid caps, on the other hand, have followed a path that is completely the opposite of the large caps.
There has also been quite a bit of divergence in the Health Care sector. While large and mid caps have gone parabolic in recent weeks, none of the love for the sector has been rubbing off on small caps. We are seeing a similar divergence in the Industrial sector, but in this case the large caps, which have outsized exposure to international markets, are underperforming while mid and small caps are both holding up relatively well. That being said, across all three market caps, Industrials have been underperforming over the last week.
Like the Energy and Industrial sectors, Materials stocks have a lot of exposure to international markets. Large and mid cap stocks in the sector have been underperforming over the last year, while small caps, which tend to have less international exposure, have bucked the trend and outperformed.
In the large cap Technology sector, shares of Apple (AAPL) have no doubt been a drag, but even in the mid and small cap sectors, tech stocks have been lagging. With a lot of international exposure and no major product trends/shifts, investors have been avoiding the Tech.
Finally, in the Utilities sector, stocks have been following similar paths over the last year, although mid cap stocks in the sector have had a slight edge in terms of their relative strength. Given the fact that companies in the sector primarily have domestic exposure regardless of the market cap, it makes sense that these stocks are seeing pretty uniform performance across all market cap ranges.
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