Back in the dim past, when I was working as a portfolio manager, I was at an early January strategy meeting one year that had been called to discuss strategy for the upcoming months. I said I thought this would be an especially difficult time to make money. Everyone else started laughing–apparently because that was what I said at the start of every year.

I’m finding this year to be very unusual–and difficult. Washington seems to be populated at present by an unusually large number of serial bunglers, so the road forward appears to be chock full of economic potholes. Hard, for me anyway, to figure which ones are safe to ignore. Also, and maybe because of government dysfunction, the typical rotation from one economic sector to another, based on valuation, doesn’t seem to me to be occurring.

To illustrate:

YTD sector performance, through yesterday:

Energy +37.7%

IT +23.7%

Materials +16.9%

Industrials +16.8%

S&P 500 +12.9%

Healthcare +10.6%

Staples +7.7%

Real estate +7.6%

Financials +5.5%

Utilities +1.3%

Communication services -.2%

Consumer discretionary -1.4%

The biggest winners have continued to be beneficiaries of the war in the Middle East–energy and defense industrials–and stuff that goes into AI data centers.

Consumer discretionary, usually a strong sector when the US is not in recession, as well as a place where a market busy elsewhere for a time will inevitably rotate to, is not only in the minus column but dead last in the rankings.

And as far as the winners go, Energy and Materials are tiny sectors at ~3% of the index each. IT, about a third of the index, is in the plus column vs. the S&P, but all the other four 10%+ sectors are underperforming.

There has been one significant rotation in the market this year–away from the owners of data centers (basically in the
Communication services sector) and toward in increased focus on the makers of the semiconductors (in IT) whose output will reside in them. But that’s an intra-sector move. So far there’s no sign I can see in the stock market of anticipation of any consumer-friendly, GDP growth enhancing, policy changes in Washington.

The one near-term implication of all this is to look outside the US for new growth ideas.