Computer and financial companies, which have led gains in the Standard & Poor’s 500 Index this year, are showing opposite trends in their charts relative to the overall market, according to Bank of America Corp.
A 15 percent rally this year brought the S&P 500 Information Technology Index’s price ratio compared with the full index close to the highest level since 2001, while the financials gauge remains stuck in a two-year downtrend after a 14 percent gain, according to data compiled by Bloomberg and Bank of America.
“Technology is entering a secular bull market,” Mary Ann Bartels, New York-based head of U.S. technical and market analysis at Bank of America, wrote in a note dated yesterday. “Financials remain in a secular bear market that can last several more years,” she said. “The current pattern is a tactical rally within this bear market.”
The two biggest industry groups have risen more than the overall S&P 500 this year as investors shifted focus to companies most-tied to economic growth, encouraged by better-than-estimated earnings and data on housing and the labor market. The technology index climbed to the highest level since February 2001 yesterday, while the financials measure gained 0.9 percent and is near its highest point since July.
Computer and financial shares shared the same pattern during their plunges from peaks. The technology index’s price ratio to the S&P 500 fell 66 percent to 0.22 from 2000 to 2002, according to data compiled by Bloomberg. The housing boom and bust prompted the same magnitude of drop in financials’ performance relative to the full index. Their ratio fell 66 percent from 2006 to 0.12 in 2009, the data show.
The rally in computer stocks this year marked the completion of “a big base,” Bartels said. “Similar to technology coming off the 2002 low, time and patience are required for the financials.”
The technology index’s price ratio to the S&P 500 reached 0.34 yesterday, according to Bloomberg data. Financials’ relative performance ratio was 0.15, compared with its October 2009 peak of 0.19, the data show.