Three-Sector Hypothesis

I like the StockCharts Performance Charts - called PerfCharts. The time period can be adjusted and comparisons can be made. But what I find interesting is that while a performance chart of the S&P 500 shows it is down -6.93% over the past 1 year (253 days using time slide bar below the chart (See here ) the sectors performance chart for the same period shows most of the sectors are up over a comparible period (See here.) How are we to interpret the data? Our economy has shifted from an economy where raw materials and manufacturing were the pricipal drivers of the economy to more of a service driven economy (See Service Sectors) The service side which could be 70+% of our economy is the side that is suffering the most. Financials, which make up a large part of the service side, are down almost 30%! For the economy to turn around this part of the economy needs to do better.

The Three-Sector Hypothesis divides the economy into raw materials (primary), manufacturing (seconday), and services (tertiary) sectors. I like this idea. Select Sector SPDRs are unique ETF's that divide the S&P 500 into 9 sectors. How can we divide these 9 Amex SPDR Indexes into these 3 sectors? Let's look at each.

Raw Materials - This would include the XLB, XLE and XLU. This is by far the strongest sector of the economy.

Manufacturing - This would include the XLI, XLK, and XLY. This group, like the S&P 500 itself, is down for the year.

Services - This would include XLF, XLP, and XLV. This group is by far the weakest sector of the economy.