Early Cyclicals Moved To New Relative Highs During Recent Market Turmoil by Jennifer Thomson, Gavekal Capital Blog
Regular readers are familiar with our reliance on ‘baskets’ of stocks in order to gain a high-level perspective on general market trends. To (quickly) review:
In the Cyclicals basket, we include the Consumer Discretionary, Energy, Industrials, Information Technology, Financials, and Materials sectors. Counter-cyclicals are comprised of Consumer Staples, Health Care, Telecommunications Services, and Utilities. Making further distinctions between Early Cyclicals (Consumer Discretionary), Hyper Cyclicals (Financials, Information Technology), Late Cyclicals (Energy, Industrials, Materials), and Growth Counter-cyclicals (Consumer Staples, Health Care) assists in refining our understanding of high-level trends.
Given the recent market volatility, we thought it would be useful to review our baskets for any important change(s) in trend. In general, it is safe to say that the longer-term trend of Counter-cyclical relative outperformance remains intact (in spite of some fairly sharp corrections recently).
Since the financial crisis, Warren Buffett's Berkshire Hathaway has had significant exposure to financial stocks in its portfolio. Q1 2021 hedge fund letters, conferences and more At the end of March this year, Bank of America accounted for nearly 15% of the conglomerate's vast equity portfolio. Until very recently, Wells Fargo was also a prominent Read More
Interestingly, though, the Early Cyclicals group (i.e. Consumer Discretionary stocks) is the only one that managed to move to new relative highs, led by MSCI North America, during the recent market turmoil. Other Cyclical groups held up decently as well, all things considered.
While it is clearly too early to tell if there is some kind of major shift in market leadership here, the relative strength (or lack of significant weakness) in Cyclical groups is an interesting bit of information to note.