Another Stock Market Myth Exposed

Part of my book Invest Like a Fox…Not Like a Hedgehog is devoted to teaching that there are a lot of market myths that are widely-held despite the lack of data to support them. Here’s evidence of one. Some people are worried about the stock market, because the sectors considered to be defensive have been leading lately. They say this indicates investors are losing faith in the market and soon will sell

The evidence is that this logical theory isn’t reliable. Sometimes markets fall after defensive sectors lead for a while. Others times, the markets keep rising. Always check the data before believing a market rule.

As shown at below, there have been 26 years since 1982 where the S&P 500 was positive.  In twelve of those years, health care was one of the three best performing sectors, while consumer staples was in the top three ten times.  Utilities have only been best six times, but it should not surprise anyone that in a low interest environment a sector with a 3.7% yield is one of the best performing.