Market Leadership Midway in 2019

The S&P 500 Index gained 17.4% during the first half of 2019, the best start to a year for the stock market since 1997, and its tenth-best start since 1950. “It’s tough to be critical of this market after such a strong start to 2019, but we would prefer that stocks were less reliant on monetary policy support from the Fed,” said LPL Chief Investment Strategist John Lynch. “At some point that support won’t be there, and traditional economic and market fundamentals will matter much more, although maybe not quite yet.”

We would also like to see more sustained leadership from the cyclical sectors of the market to reinforce the foundation for the longest bull market ever. While cyclical sectors mostly outpaced defensives in the first half, it wasn’t convincing. Over the past year, the defensive sectors (consumer staples, healthcare, real estate, and utilities) have each outperformed the S&P 500, based on the S&P 500 GICS, even though the broad stock market benchmark gained 9% during that time period, as shown in the LPL Chart of the Day, Defensive Sectors Have Led Over the Past Year. Defensive sectors tend to lag in rising markets—at least more often than not.

Gold also outperformed the S&P 500 during this period, based on Bloomberg Gold Subindex, as the precious metal has been a beneficiary of the Fed’s U-turn on monetary policy. Meanwhile, the more defensive large caps have beaten small caps, based on the Russell indexes.

We continue to favor cyclical sectors over defensives and expect performance to improve in the second half. Technology has been a bright spot all year, and financials led during the second quarter. But we would like to see more consistent leadership from more cyclical areas as a sign of this bull market’s health.


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