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Markets have had a great run in recent weeks but not all sectors have done equally well so it is important to back the right sector.
Let’s contrast the Materials and Finance sectors:
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Finance – blue line – has lagged in contrast to Resources. This is not surprising given the strong metals and oil prices. And the sector has run hard despite the strengthening Aussie Dollar.
Again we see a stark contrast between Consumer Staples expenditure and Discretionary spending.
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The former is our day to day needs – we are buying more! And the latter is in the main durable goods - the likes of restaurants, travel etc, These are things we can do without, and when there is talk of interest rate rises this form of expenditure lags as we become cautious. Also, there is still a lingering fear that, whilst in OZ we may be doing just fine because of the resources demand from China, all is not good in the Western economies. Just talk to any shopkeeper – they will tell you they have never seen it so bad.
And Industrials have done much better than Health:
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If you are a contrarian you would now maybe think the lagging sectors might do better in the coming months? Not really. In six months there will be a whole raft of different sector overlays I will be able to show you.
That’s the dynamics of the markets.
Enjoy the ride
Tom Scollon
Chief Analyst |