Many global stock market indices yesterday recorded fresh highs for the year, spurred on by better-than-expected economic and earnings reports, and a fair bit of momentum buying from latecomers to the rally that commenced five months ago. Notably, the ISM Manufacturing Index recorded its seventh straight gain in June. While the reading of 48.9 is still below 50 – indicating ongoing contraction in the manufacturing sector – the data point provided encouragement.

As far as the US markets are concerned, the S&P 500 Index breached the psychological mark of 1,000 for the first time since November and the Nasdaq Composite Index reached the roundophobia 2,000 level not seen since October.

All the economic sectors of the S&P 500 Index posted gains, confirming a pattern of the cyclical sectors like materials, consumer discretionary and industrials outperforming the defensive-oriented sectors such as utilities, health-care and consumer staples. The chart below shows the performance of the sectors since the low of the S&P 500 Index on March 9 and displays the relative pattern one would typically expect during a bullish phase. Although financials outperformed since March, the sector still lags for the year to date (+7.6% versus S&P 500’s +11.0%) as a result of its dismal performance during the first two months of 2009. “If the rally continues, look for the outperformers to continue to do well and the defensive sectors to underperform,” said Bespoke.

Source: StockCharts.com

View original at: Investment Postcards from Cape Town

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