Very often, when the stock market makes a significant low and begins to rebound, a change in market leadership also takes place.  A new group of individual stocks and sectors emerges as the strongest performers as the market rises, sometimes emerging from areas least expected by conventional wisdom.  At the same time, at least some of the prior market stars are left by the wayside.  In my experience, the left-behind phenomenon occurs much more frequently.

It isn’t 100% clear that the recent market decline has been significant enough to be one of these transformative moments, although the drop of around 15% in the S&P from its intraday high last November to (what we hope was) the intraday low on Wednesday is the largest fall we’ve seen in some years. Still, it doesn’t cost anything to observe and analyze stock price movements to try to uncover new trends.  And if there were one time we should be extra-sensitive to deviations from the prior norm, this would be it.

(Monthly performance records of the S&P 500 by sector going back for years can be found on my Keeping Score page.)

Has the market really bottomed?  The intraday plunge in New York trading on Wednesday, followed by sharp rises around the world on Thursday and more so far today is the typical bottoming/rebound pattern.  So my guess is Yes.  Typically, the market will repeat the pattern we saw in the S&P last August-September–that is, a rally for several weeks, followed by a return to the vicinity of the prior lows and then a stronger rebound.

Will Energy and Materials lead on the way up?  I find that hard to believe, but both sectors have been drubbed over the past year or more.

Will Healthcare and Consumer discretionary lag?  That wouldn’t be my first instinct, either.  But the important thing isn’t what I think, it’s what the performance numbers begin to say in the coming weeks.

Other possibilities?

My guess is that we’ll find more separation of companies on the Millennials vs. Baby Boomers theme.   We may also see a sharper distinction between companies born out of WWII and whose managements have resisted structural change vs. those firms, both old and new, who have embraced the internet, mobile and the cloud.  Small may begin to outperform large.