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Are we seeing the emergence of new leaders or the return of previous ones?

Updated: May 17, 2023

As an investor, you may wonder whether it's time for a leadership change or if we should return to the old leaders in the stock market.


In May 2013, the S&P 500 Index (SPX) broke the 2000/2007 highs (1,553-1,576), marking the end of the 2000-2012 structural bear/trading range trend and the start of a new structural bull trend.


However, if the 10/13/22 low (3,491.58) is a market bottom, the 1/4/22 peak (SPX – 4,818.62) may have been a temporary high, indicating a cyclical bear decline within the confines of a structural bull trend that began in May 2013.

It is still too early to confirm the Oct 2022 low as the final market bottom and reaffirm the resumption of the May 2013 structural bull, but it is a constructive technical development.


As history has shown, the stock market provides subtle clues to structural trend changes, and one of the characteristics of a new structural bull is the emergence of new market leaders.

Since the 1/4/22 high (SPX – 4,818.62) to 5/16/23, there appears to be the emergence of new S&P leaders, such as Energy (XLE +36.99%), Consumer Staples (XLP +1.31%), Utilities (XLU -2.12%), Healthcare (XLV -3.04%), Industrials (XLI -6.84%), and Materials (XLB -12.09%).


However, Consumer Discretionary (XLY -28.64%), Real Estate (XLRE -26.57%), Communication Services (XLC -22.28%), and Financials (XLF -19.43%) have severely lagged the SPX Index.

Although the technology sector (XLK -11.21%) has outperformed the SPX Index from 1/4/22 to 5/16/23, the economically sensitive Consumer Discretionary (XLY -28.64%) and former leadership Communication Services (XLC -22.28%) have severely lagged the SPX Index, indicating that the leadership has not changed yet.


Also, from the 10/13/22 low (3,491.58), Technology (XLK +27.42%), Communication Services (XLC +23.48%), Industrials (XLI +13.67%), and Consumer Staples (XLP +12.23%) have outperformed SPX (+11.99%). On the other hand, the laggards have been XLE (-5.76%), Financials (XLF +2.15%), Consumer Discretionary (XLY +5.52%), Healthcare (XLV +5.75%), Real Estate (XLRE +5.94%), Utilities (XLU +7.34%), and Materials (XLB +10.97%).


It remains unclear whether there has been a change in leadership to justify a new structural bull trend.


If the 2013 structural bull trend remains, the old leadership sectors such as XLK, XLC, and XLY will once again resume their leadership roles as SPX confirms breakouts above (4,325.28 – 8/16/22 reaction high) and the previous all-time high (4,818.62 – 1/4/22).


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

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