Sector Returns Over the Last Quarter Suggest Risk Off Likely to Continue
My most recent Economic Outlook called for continued sluggish business conditions in early 2013: what used to be called a “growth recession.” Growth should remain positive, but too tepid to create enough jobs to really move the needle on underemployment. Let’s corroborate that view with some wisdom from the stock sectors. Below I’ve graphed the return to the top and bottom 2 stock sectors over the last 90 days.
It was basically a risk-off story, as technology and energy stocks tanked, and health care and materials led — both up about 2.0%. Materials stocks’ advances were driven by more of an oversold rebound, not a big shift in expectations regarding the global business cycle.
Relating to my call for continued sluggish conditions, financial markets also appear to be braced for continued risk-off. Best near-term rally point I can foresee is a little volatility burst around some last-minute fiscal cliff heroics. The market’s already leaning towards the “we don’t fall off the cliff” outcome, but my view is that traders are going to indulge in a faux good news rally when the word is “officially” announced.
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Financial Market Commentary 
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