Information Technology Sector Emerging as S&P 500’s New Leader

Bank of America Merrill Lynch released its latest sector-by-sector analysis of the S&P 500 on Monday. Here are some highlights:

Financials have outperformed since March, but remain entrenched in bear market levels. "[The sector] requires a longer-term period of basebuilding before a sustainable rally can be seen for the sector," the note said. Analyst models show financials are overbought and are likely to remain so, a positive sign. However, earnings-per-share revisions and analyst rankings are still sour. "Are analysts behind the curve?" the note asks.
Energy remains a long-term market leader, but has underperformed during the March rally and may lose its relative upwards trend from 2003. "To improve the relative chart pattern, a breakout above the downtrend line from the June 2008 high would be a step in the right direction," the note said. EPS targets and analyst revisions remain favourable, however.
On the other hand, the Information Technology sector is emerging as a market leader. "Relative to the S&P 500, information technology is showing significant signs of strength," the note said. "This has the potential to complete a multi-year base vs. the S&P 500 and position technology for a longer-term market leadership trend." The sector has returned to overbought levels, and may stay there for a while, the note said.

Other sectors with a positive outlook include health care and utilities, while consumer discretionary and industrials may stall.

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