A common saying on Wall Street is “sector rotation is the lifeblood of a bull market,” and Leuthold Group’s chief investment strategist James Paulsen seems to agree.
In a Thursday note, Paulsen highlighted the eight sectors that are driving a healthy rally in stocks since the March 2020 pandemic low, creating “a self-sustaining bull.”
Those areas of the market that have helped drive upside in the stock market while not consistently driving the action include: value, growth, cyclical, price momentum, high quality, small cap, emerging markets, and high beta, according to Paulsen.
“Although each of these has had its day in the sun, no single investment attribute has persistently dominated since the bull market began after the March 23, 2020 bear market low,” Paulsen explained.
While growth, quality, and momentum drove the bull market in its early days last year, leadership in the stock market has more recently been taken over by cyclicals, value and small caps.
“The stock market hasn’t yet been monopolized like past bull markets,” Paulsen said, pointing to examples like energy in the 1970s, technology in the 1990s, and financials in the early 2000s. Instead, the market has trended higher, regardless of which area of the market is leading at any particular time, which is a healthy characteristic of market uptrends.
The only sectors that have failed to lead the market higher in this bull cycle are defensives, like utilities and consumer staples.
“Not surprisingly, ‘playing defense’ in this Bull has proven to be a chronic loser,” Paulsen said.