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Much of the dreadful economic news in recent weeks has centered on consumer spending. Last Friday's 2.8% decline in retail sales, the largest since the series began in 1992, simply confirmed what has been obvious all around us, and that is a precipitous decline in all economic activity since the mid-September bankruptcy of Lehman Brothers.
Also apparent in this short history is that consumer-discretionary issues outperform the broad market only during bullish phases. That, as we shall see below, is precisely the opposite of the current situation, and suggests this sector should be avoided until we some evidence of an economic and market turnaround. Sector PerformanceIf we use Sept. 12, 2008 -- the Friday before the Lehman Brothers bankruptcy -- as a starting point and go through Wednesday of last week, we can see how only the basic-materials sector, last discussed here in the context of global mining stocks, has performed the worst. That cannot be surprising in a deflationary environment. The consumer-discretionary sector, highlighted in blue, comes next. The total return for the sectors is centered on the -32.3% total return for the SPR itself over this period; please note that even the "best performing" sector, consumer staples, had a -20.7% total return over this period.
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Howard L. Simons is president of Simons Research, a strategist for Bianco Research, a trading consultant and the author of The Dynamic Option Selection System. Under no circumstances does the information in this column represent a recommendation to buy or sell securities. While Simons cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email. Brokerage Partners
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