This table below shows the performance of each sector during the 1 month previous to its peak. So generally its shows how the defensives do underperform during the early run up to the peak (funny enough, this isn't happening very much during this run up as defensives are leading YTD gains). Utilities for example, only gained 1.8% on average while industrials gained 4% during the pre-month period. Generally defensives underperformed the S&P by ~1.5% and vs the heavy cylicals by 2.5%.
S&P 500 | Industrials | Materials | Cons. Disc. | Tech | Health | Utilities | Cons. Staples | |
Event | SPY | XLI | XLB | XLY | XLK | XLV | XLU | XLP |
Sept, 2012 | 4.58% | 3.31% | 7.42% | 6.61% | 4.71% | 2.53% | -2.46% | 0.06% |
Apr, 2012 | 3.30% | 1.40% | 0.54% | 3.88% | 4.81% | 3.94% | 0.74% | 3.43% |
July, 2011 | 4.96% | 6.92% | 7.14% | 7.96% | 5.26% | 2.54% | 2.45% | 2.48% |
Apr, 2010 | 4.09% | 6.75% | 4.39% | 8.74% | 4.57% | -2.76% | 3.57% | 0.21% |
Jan, 2010 | 4.40% | 5.53% | 7.35% | 2.60% | 3.22% | 6.01% | -0.26% | 2.63% |
July, 2007 | 1.15% | 3.96% | 3.82% | 0.15% | 3.69% | -0.30% | -0.69% | 0.36% |
May, 2006 | 2.17% | 5.44% | 6.74% | 2.84% | -2.70% | -2.24% | 4.08% | 3.07% |
Sept, 2005 | 0.98% | 0.20% | -2.68% | -1.71% | -0.47% | 1.95% | 5.82% | 0.95% |
Mar, 2005 | 2.27% | 3.15% | 7.18% | 0.12% | 0.35% | 2.91% | 3.03% | 0.30% |
Avg | 3.10% | 4.07% | 4.66% | 3.47% | 2.60% | 1.62% | 1.81% | 1.50% |
Median | 3.30% | 3.96% | 6.74% | 2.84% | 3.69% | 2.53% | 2.45% | 0.95% |
This table below shows the entire period from 1 month before the peak all the way down to the the bottom. In the end, the defensives still beat the S&P 500 by about 3-5%, not bad.
S&P 500 | Industrials | Materials | Cons. Disc. | Tech | Health | Utilities | Cons. Staples | |
Event | SPY | XLI | XLB | XLY | XLK | XLV | XLU | XLP |
Sept, 2012 | -3.62% | -3.09% | -2.58% | 0.29% | -8.42% | -0.13% | -9.05% | -4.39% |
Apr, 2012 | -6.71% | -10.18% | -11.16% | -3.75% | -5.91% | -1.98% | 2.49% | 0.18% |
July, 2011 | -14.76% | -20.71% | -24.60% | -12.22% | -8.71% | -12.35% | -0.79% | -5.95% |
Apr, 2010 | -12.33% | -13.12% | -16.72% | -12.16% | -11.78% | -12.13% | -4.38% | -8.81% |
Jan, 2010 | -3.92% | -3.41% | -6.25% | -3.44% | -6.05% | -1.45% | -8.80% | -1.11% |
July, 2007 | -7.86% | -4.62% | -10.22% | -11.50% | -4.00% | -6.74% | -5.96% | -3.78% |
May, 2006 | -5.54% | -4.43% | -9.79% | -4.08% | -11.88% | -3.78% | 4.86% | 0.51% |
Sept, 2005 | -4.83% | -2.65% | -8.83% | -9.68% | -5.77% | -3.52% | -3.42% | -2.25% |
Mar, 2005 | -5.22% | -5.13% | -5.69% | -9.32% | -8.17% | 1.14% | 0.79% | -4.71% |
Avg | -7.20% | -7.48% | -10.65% | -7.32% | -7.85% | -4.55% | -2.70% | -3.37% |
Median | -5.54% | -4.62% | -9.79% | -9.32% | -8.17% | -3.52% | -3.42% | -3.78% |
One of the things that bothered me when I was doing this study is the short duration of these drops. I didn't list it here but vast majority of the drops lasted about 1.5-3 months. If the drops are truly fundamentally driven by economic cycles, it seems like it should've lasted longer than that. It may have to some degree as I only picked the period from peak to bottom, not peak to re-peak.
In any case, a short duration to me indicates that the drops may not be necessarily cyclical in nature and more of a news driven event / market overbought sentiment. If that's truly the case, then the performance of defensives during this periods may be more related to investors psychologically thinking to move into them rather than the underlying economic principles.
Does that matter? Not particularly as long as the trend holds but its an interesting observation.
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