Reversal of 'Risk' and 'Risk-Off' Sector Returns

The above chart depicts the difference in performance of the SP500 (blue line) against the utility (purple line), consumer defensive (red line), and technology (green line) sectors since the market correction began at the end of July through today. Clearly over the period the two traditionally defensive sectors along with technology sectors soundly outperformed the general market. This outperformance during the recent correction helped our clients realize superior risk adjusted performance. For example the above chart indicates that the utility sector was actually up 2.7% while the S&P 500 was down 6.75% for that period. This represents 9.5% of relative outperformance.

Over the past 2 weeks Traphagen is seeing signs that this is reversing (at least temporarily) and more aggressive sectors are beginning to outperform. For instance sectors such as industrials, energy, materials, and financials have been strong outperformers for the month of October so far.  Traphagen has trimmed exposure to the utility sector in some portfolios (except for the most conservative) and we might make some additional changes to take advantage of this market shift.

Overall we are still quite defensive as Europe is far from resolved, but when we observe a significant change in market sentiment we look to take advantage.