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Exiting Our December Outperform Bias In Cons Discretionary

Posted on: Monday, April 20th, 2015

Our sector rotation model moved back to a market perform bias on the Consumer Discretionary Sector this morning, from an outperform bias as of December 1st 2014, to capture 6% of relative sector outperformance versus the S&P 500 during that almost-five-month period.  This change of bias was due to the recent contraction in investor asset flows from an  historically very over-invested sector.

The following (green font) is a brief excerpt from this morning’s Keys To This Week report, one of 8 reports that we produce for subscribers, where we display and discuss the reasons for our change of bias on Consumer Discretionary, and also display our model’s current bias for the other sectors of the S&P 500.


Excerpt From: Keys To This Week
Date: April 20th, 2015
Subject: US Stock Market Sectors

The green highlights in Table 2 below show that, for the second consecutive week, the biggest inflow of ETF-related investor assets over the past 1 week, 1 month, and 3 month periods has been into Energy.  As a direct result, Energy was the only sector to finish in positive territory last week, gaining 2.2%.  The red highlights show the biggest outflow of assets over the past 1 week came from Consumer Discretionary.

Table 2

Chart 7 below shows the current distribution of assets invested in the 9 Sector SPDR ETFs through Friday, and points out that Consumer Discretionary is currently the most over-invested sector of the S&P 500 as it comprises 11% of the sector pie versus an historic 5%.  Not shown is that this is the most over-invested that this sector has been in the history of our data, which warns of its vulnerability to upcoming relative underperformance versus the S&P 500.

Chart 7

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