The market continues to move higher in a stair step fashion.

Since the breakout in May 2021, the S&P 500 has moved higher in a clear trading channel. Dips are bought and stocks never manage to break down more than a few days at a time.

However, underneath the surface, some serious damage was done to the market this week. On a sector basis, multiple sectors that were previously in uptrends have broken down.

Specifically, Financials (XLF).

Industrials (XLI).

And Consumer Staples (XLP).

This has dramatically shifted the weighting of the market from a trend perspective. As I’ve been noting over the last few weeks, the first sign of major trouble that can lead to a crash is when underlying components begin to break down.

While it is still quite early here, these sectors can be something of a warning, particularly since all of them are closely aligned with growth in the real economy.

Remember, stocks usually don’t care about the economy. However, there are times when the economy matters A LOT to the stock market. Those times are usually when the real economy begins to collapse, growth disappears, and stocks’ hopes of futures earnings go up in smoke.

With that in mind, these sectors bear watching. It’s early yet. But this is something of a concern.

Best Regards,

Graham Summers
Editor, Money & Crisis