Sector Scopes Monthly Review – February 2023 & FTSE 100 Index (LFS.F)
The first week of February has been one of consolidation, with world equity markets digesting the strong gains made in January. Corrections have been minor and major indices continue to build on recent positive signals including Head and Shoulders or Ascending Triangle base completions, Bullish Catapults and Golden Crosses. This week the FTSE has become the first major index to reach a new high in over a year (more on this below). Several days have seen softness in the early morning hours followed by recovery through the trading day to a positive close, a sign of resilience and accumulation.
Improved investor confidence has been supported by last Friday’s stronger than expected US nonfarm payrolls data. Falling wage inflation and recent comments from Fed Chair Powell on “disinflation” suggest that even though the Fed is continuing to raise rates now, it’s rate hike program is likely in the later innings.
The coming week brings a number of potentially significant reports for investors. Notable reports include Canada’s monthly jobs data tomorrow, US consumer price inflation on Tuesday, and US retail sales on Wednesday.
The coming days bring the peak of earnings season for Canada, with headliners including Thomson Reuters, Telus, Cameco, Canada Goose, Canopy Growth and others today, Magna and Enbridge tomorrow, Suncor Energy, First Quantum, and West Fraser on Tuesday, and Shopify, Manulife, Barrick Gold and Nutrien next Wednesday. US earnings season is now past its peak with results dominated by small and mid-cap companies. US notables include Coca-Cola on Tuesday and Cisco Systems on Wednesday.
In this edition of the Equity Leaders Weekly, we take a our monthly look at Sector Scopes and consider the significance of the recent new all-time high for the FTSE.
Sector Scopes Monthly Review – February 2023
The Sector Scopes feature in SIA Charts, found in the Markets – BPI section, provides investors with a visual snapshot of the Bullish Percent (percentage of stocks in the sector on a bullish signal) for 31 industry groups. This provides insight into which sectors are attracting capital, and which are not at a given point in time, and also how capital flows and investor sentiment change over time.
A month ago, the sectors were fairly evenly spread across the spectrum with more in the middle, indicative of a neutral market. Over the last four weeks, the sectors have shifted rightward en masse, indicative of a very broad-based rally and an upward shift in bullish percent. Currently, the sectors are piled up on the right hand side of the chart, indicating a broad based bull market appears to be underway. That being said, it also suggests that the market may be close to overheating and potentially due for a pause.
Computer Software and Electronics & Semiconductors have had the largest rightward moves, indicating relative outperformance. Energy has lagged on the left hand side and investors should note that other relatively weaker sectors in terms of bullish percent are defensive such as Utilities, Drugs and Food. On the rightmost side we see a number of cyclical sectors doing particularly well including Automotive, Manufacturing, and Transportation.
FTSE 100 Index (LFS.F)
In recent issues of the Equity Leaders Weekly, we have discussed the resurgence in International Equities over the last few months. That recovery has recently been capped off by the FTSE 100 Index breaking out to new all-time highs, completing a bullish Spread Triple Top on the 1% chart and a bullish Quadruple Top pattern on the 2% chart.
This breakout can be attributed to a number of factors. First, the FTSE 100 is comprised mainly of large global companies who benefit from the lower valuation of the Pound relative to the US Dollar and some other currencies. Second, the FTSE previously peaked back in 2018, meaning that it did not rally to new highs in 2020-2021 leaving it with a lower bar to clear compared with its peers in the US and Europe.
The FTSE has a significantly different composition than other indices which may also be helping it gain ground. Compared to senior indices in the US and Canada, the FTSE has a particularly high weighting in Defensive sectors and an extremely low weighting in Growth sectors, with a concentration in Resource stocks similar to Canada and a concentration in Financials similar to the US.
Resource (Energy and Materials) UK 24.4%, US 8.0%, Canada 30.1%
Growth (Communications and Technology) UK 4.3%, US 33.0%, Canada 8.9%
Defensive (Consumer Staples and Health Care) UK 33.7%, US 23.0%, Canada 4.8%
Cyclical (Consumer Discretionary and Industrials) UK 14.9%, US 18.5%, Canada 14.9%
Financials (Financials and Real Estate) UK 18.1%, US 14.3%, Canada 36.7%
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