Economically cyclical stocks have handily outperformed over the last 3 months. Technology, energy and consumer discretionary stocks have been leading the charge, and they are likely to continue leading the charge through Q1 of 2011.
Indeed, the mere fact that defensive equities like staples, utilities and health care have anchored the rear suggests that December’s rally may be legitimate. Absent the known trials and tribulations (e.g., European credit concerns, China inflation, Korean tensions, etc.), investors expect corporations to keep earning and consumers to keep spending; others strongly believe that businesses may even ramp up hiring.
Lack of consistent interest in SPDR Financials (XLF), however, may present a thorny problem for the overall trend. Without consistent leadership, one might presume that lending activity is struggling or will continue to struggle. XLF’s present lack of leadership should be watched closely.
In the meantime, the primary fear is “missing the bull run.” I do not think you need to chase it, but you shouldn’t be afraid to make selective purchases on pullbacks.
Volatility is exceptionally low…
and stock market benchmarks are at or near 52-week highs.