Update: Financials/Consumer Discretionary Leading Another Rally?

Today is the last trading day of the half-year, quarter, month, and the week – and what a week it’s been. Historically speaking, today is the busiest day of the year for floor traders, as we also have the Russell re-balances, which will result in increased volumes and volatility heading into the close.

While the main focal point this week was clearly on the bond market, investors could be positioning themselves for an impending equity rally. Funded in large part by massive gold sales, capital has flowed into the financials, consumer discretionary, and utilities sectors. Right now, the S&P 500 is up about 2% off the lows from Monday, with both financials and consumer discretionary up nearly 4%, and utilities up 3%. Interestingly, while the volume leaves much to be desired this week, these same sectors (especially financials and consumer discretionary) led the “V-shaped” market rallies from the pullbacks we saw in April, February, December, and November (see chart below).

Obviously there are many new variables to account for in 2H13 (i.e. Fed tapering, rising interest rates, increased Middle East turmoil, Chinese liquidity concerns, Japanese volatility, etc.), but it will be interesting to see if financials and consumer discretionary lead the markets out of the most recent pullback and on to new highs.

v shaped rallies

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