Crosses between traditionally defensive and offensive sectors typically occur around key market inflection points. That said, the consumer discretionary average fund score has not overtaken consumer staples; in fact, the divergence between the two recently widened.
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2022 has proved to be an interesting market environment, and the recent two-month rally has been no different. As discussed in previous features, strength from small-cap equities and growth stocks is to be expected from bona fide movements off lows. While this evidence is still present, broadly speaking, it should be noted that this market rally has seen continued leadership from more traditionally defensive sectors, namely utilities and consumer staples. Both sectors fought their way into overweight positions over the last two months in the DALI rankings, and currently are the only two broad-based sectors to sit above a 4.0 average score rank on our Asset Class Group Score (ACGS) page. Both sectors have an above-average score direction, suggesting continued strength in comparison to the broader market.
As seen from the chart below, crosses between defensive sectors (non-discretionary in this case) and the more “risk-on” consumer discretionary sector typically occur around key market inflection points. When consumer discretionary is in favor versus consumer staples, market conditions (usually) favor risk allocation over more stable/defensive assets. That said, the consumer discretionary average fund score has not overtaken consumer staples; in fact, the divergence between the two recently widened. Some speculation on why this is happening - dominance from "quasi staple" stocks like Costco (COST) and Estee Lauder (EL) in comparison to more traditional, “old-school” defensive equities. Also, the possibility of lingering inflationary/macro fears could push investors back to the safety of these sectors along with persistently high commodity prices (especially in the case of utilities). Whatever the fundamental case may be, the spread between consumer discretionary and the two defensive sectors is one to watch as we head into the historically weak month of September.
