Stovall on Sectors: Momentum, Housing and Second Terms

At this week’s investment policy committee meeting, we discussed momentum, housing and the start of the president’s second term.

The S&P 500 remains in an uptrend, when you compare its week-ending index level to its own 4-, 13-, 26- and 40-week moving averages. So too are the Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials and Materials sectors. On a relative strength basis vs. the S&P 500, the Consumer Discretionary, Health Care, Industrials and Materials sectors remain above all four of their moving averages, while pronounced weakness remains for the Information Technology, Telecom Services and Utilities sectors.

Housing starts helped boost stock prices last week, as the report for December showed a surge of 12% and starts were up 37% year over year. Since 1959, whenever starts rose by more than 25% in the prior year, the S&P 500 gained an average 9% in the following 12-months, posting advances in two-thirds of all observations. While past performance is no guarantee of future results, it’s still encouraging.

Finally, President Obama was inaugurated to his second term on Monday, January 21. During his first term the S&P 500 rose a cumulative 58% in price, placing him fifth since 1900 behind Presidents Clinton, Coolidge, Eisenhower and FDR, but well ahead of Wilson, Bush 43 and Hoover who saw market declines during their first terms. The average first-term gain of 38% for all presidents is more than twice the average 17% rise during second terms, however. Let’s just hope President Obama’s next four years see results similar to the average 22% for his fellow second-term Democrats.

— Sam Stovall, Chief Equity Strategist of S&P Capital IQ