The 3rd quarter marked an inflection point for the stock market as the long-term leadership sectors gave way to new emergent themes. The following table helps illustrate just how much the market leadership shifted during the quarter as we compare the 1-year performance of each sector through 6/30 vs its respective Q3 performance.
| Sector | 1-Year | Q3 |
| Energy | 51.7% | -22.2% |
| Materials | 38.8% | -25.4% |
| Consumer Discretionary | 38.0% | -13.3% |
| Industrials | 35.6% | -21.5% |
| Telecom | 33.5% | -18.1% |
| Health Care | 25.9% | -10.6% |
| Info Tech | 25.9% | -8.2% |
| Utilities | 18.5% | +0.4% |
| Financials | 11.0% | -22.9% |
| Consumer Staples | 5.3% | -5.0% |
With the S&P downgrade to US debt, the sovereign debt crisis, and no improvement on the unemployment front, it is probably no surprise that investors switched from offense to defense in the 3rd quarter as the best performing sectors were those that are defensive in nature and cyclical sectors were damaged the most. Time will tell whether this is just a short-term blip for the market or something worse, but for now its important to be aware that a leadership shift is taking place.
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