Among broad economic sectors, the cyclicals have provided formidable, favorable relative
performance during this cyclical bull run. As the chart link below will indicate, the momentum
of relative strength has eased as the recovery moves along. This development suggests that
investors are anticipating that the relative strength in earnings performance which the cyclicals
normally enjoy in the early going of an economic upturn will moderate further as the recovery
wears on. It also suggests that investors may be somewhat wary that increased pricing power
by the cyclicals can overcome the anticipated moderation of volume growth. It is important
to remember that as an economic upturn wears on, investors will be watching for pricing
power plays as a source of relative strength in both earnings and market leadership.
The RS index for the cyclicals is currently toppy and might require another breakout to sustain
leadership. All worth watching if your portfolio has a heavy cyclical tilt. $CYC vs. $SPX.
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