This column originally appeared on Real Money Pro at 9:06 a.m. EDT on April 23.NEW YORK ( Real Money) --
"Never have so few led so many." -- AnonymousIn the 1960s and 1970s, the stock market was inhabited by the " nifty fifty," a small subset of one-decision stocks that had strong balance sheets, solid franchises (typically leaders in their field), superior profit prospects and were generally credited with the bull market of that era. Some examples of the nifty fifty included Wal-Mart ( WMT), Avon Products ( AVP), Disney ( DIS), McDonald's ( MCD), Polaroid and Xerox ( XRX). The stocks flourished for a while but ultimately became overvalued, reached speculative status and were weighed down by the bear market that continued until 1982. It seems that in every market cycle there is a nifty fifty or a body of stocks that are embraced by investors. In time, the market predictably grows more and more bifurcated, with the worshipped (few) stocks standing alone at the top of relative performance. When this happens and further extends itself into speculative excess, a correction often follows the diverging performance when the leadership group falters. In recent months, the market has become increasingly bifurcated, perhaps as much as at any time since the Internet stock boom ended in 2000, as defensive equities (consumer nondurables, health care REITs, insurance, MLPs and utilities) are leading while cyclical, energy and technology have lagged.
Source: The Wall Street Journal Since late February, the heterogeneity of the market has been conspicuous, with the strong sectors rising by 6% to 8% and the economically sensitive sectors dropping by a similar amount. This diverse performance, seen in the chart below, has disguised an internal market correction even though the overall stock market has maintained an uptrend.