Relative Strength of Cyclicals Hits 3-Year Low

One of the metrics I like to follow is the ratio of the Morgan Stanley Cyclical Index (^CYC) to the S&P 500. This tells us how well economically cyclical stocks are doing. As a very general rule, cyclicals tend to move in…well, cycles — and these cycles often last for several years.

The relative performance of cyclicals peaked in February of 2011. Since then, they’ve lagged the rest of the market. The CYC lost 19% over a five-day span last August. A recent relative performance low came last October, then cyclicals started outperforming again. That ended in February, and cyclicals again have been the stragglers.

The last time the CYC-to-S&P 500 ratio was this low was exactly three years ago. What’s interesting is that even though the bull market continued to charge from February 2011 to April 2012, the nature of the rally has changed quite dramatically.

I still think we may make a new bull market high soon, but now this is a defensive-led rally. That’s why staples and healthcare stocks have been so strong, and it’s also why the bond market continues to move higher.

Posted by on July 24th, 2012 at 10:41 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.