The S&P 500 set a record Friday on lingering expectations of a Fed rate cut. Other major benchmarks also hit their own all-time highs. But a revealing breakdown of the broader index shows only three S&P 500 sectors set new highwater marks. That makes it a thin win for the stock market. It also indicates equities had to stretch to set this week's record.
When the rate cut euphoria wears off, the stock market may settle into a channel that's justified by the underlying economy's fundamentals. Crescat Capital global macro analyst Otavio Costa pointed out Saturday that technical indicators presage a recession. Or at least a "soft landing" ahead:
S&P 500 at record levels but only 3 sectors are at all-time highs.
% of sector leadership now faltering as much as it did ahead of the last two recessions.
Why is this not another 2015 soft landing?
Back then, 20% of the yield curve was inverted.
Now it’s close to 60%! pic.twitter.com/cYeaKy25f9
— Otavio (Tavi) Costa (@TaviCosta) July 13, 2019
Looking at the yield curve, the picture isn't so rosy either. At Forbes, Moola Chief Investment Officer Simon Moore explains how bond yields point to recession any way you read them.
Newton Advisors technical analyst Mark Newton told CNBC last week he expects to see the S&P 500's historic climb run out of steam at 3,070. After that he expects the market to trade sideways. He advises investors to range trade at attractive entry points for stocks in companies with long-term theses you believe in. Keep your powder dry.
Here's the sector breakdown for the S&P 500 index's winning week:
The Three S&P 500 Sectors at All-Time Highs
Hats off to Silicon Valley! The Information Technology Sector (S5INFT) led the S&P 500's 2019 bull run. It led the broader index to a record high by reaching its own new record high of 1424.
The S&P 500 Consumer Discretionary Sector (S5COND) is made up of companies that provide goods and services that people stop buying when recession strikes. That's the automobile industry, restaurants, hotels, specialty retail, apparel, home appliances, and the like. Interestingly, it made a bull run from the 860 level at the end of May to its current all-time high index of 985.
The S&P Consumer Staples Sector (S5CONS) index includes companies like Proctor & Gamble, which provide basic, recession-proof necessities. It hit its record high last week at the 615 level.
The Two Close, But No Cigar Sectors
Close don't count except for horseshoes and hand grenades!
Real Estate (S5REAS) set its record benchmark of 236 twice in June. It hovered close to it at 233 as the broader index celebrated its all-time high.
Utilities stocks (S5UTIL) reached their record high three times since late June, pulling back each time from key resistance at 310, with stocks closing a hair off new highs at 307 Friday.
The Six S&P 500 Wallflowers
No one wants to dance with these stock market sectors!
S&P Financials (SPF) grazed the 470 level at week's end, but haven't broken through to previous highs of 496 in January 2018, and its record 510 back in May 2007.
Industrials (S5INDU) pushed above 660 as the S&P index set its new record, falling short of the sector's record 680 level in January 2018.
The S&P 500 Communications Services Sector (S5TELS) is comprised of telecom, entertainment, and media companies. At the 170 level last week, it's well short of its July 2016 all-time high of 182.
The Energy Sector of the S&P (SPN) is missing out on the party! Stocks in this sector have been trading in a sideways channel since June 2015, with a 415 support level and resistance at 550. Energy was trading in the 470s last week, nowhere near its June 2014 record high in the 730s.
S&P 500 Health Care (S5HLTH) reached its peak of 1104 in September 2018. Health Care stocks were trading around the 1070 benchmark as the broader index hit record highs.
S&P 500 Materials (S5MATR) stocks will open Monday trading at 366, a good deal below this sector's January 2018 all-time high benchmark of 405.