Intermarket Analysis: Profiting from Global Market Relationships

Appendix

The start of October 2003 marked the one-year anniversary of the stock market bottom that had formed twelve months earlier. From the first week of October 2002 to the same week a year later, the Dow rose 24 percent while the S&P 500 gained 26 percent. The two best-performing market averages, however, were the Nasdaq Composite Index (+61 percent) and the Russell 2000 small-cap Index (+43 percent). That carried good news for the market. That’s because leadership by small caps and technology is a sign of market strength. Sector results were also encouraging. Technology gained 58 percent to take the top spot. The three other market sectors that outperformed the S&P 500 over the prior twelve months were Financials (+32 percent), Basic Materials (+27.3 percent), and Consumer Discretionary (27 percent).

The strong performance by Basic Materials reflected rising industrial commodity prices, which is a sign of economic strength. So is the relative strength in Consumer Discretionary stocks. Their strong performance showed rising consumer confidence, which is an important ingredient in an economic recovery. The gains in the Financials came mainly from brokerage stocks, which were among the top industry group performers (+78 percent). Brokerage stocks are viewed as a leading indicator for the rest of the stock market. Two other leading industry groups were the Internet (+120 percent) and semiconductors (+92 percent). It’s a good sign for the technology sector when the semiconductors ...