BULLS & BEARS: Sectors of stock market swing in and out of favor

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I hated chemistry class in high school.

Beakers and Bunsen burners were fun, but memorizing the periodic table of elements was torture for my ADD brain.

All those little boxes with different colors stacked up in rows with the twoletter symbols and numbers of protons and neutrons boggled my mind.

Today, though, a periodic table provides valuable instruction in my business. I am not talking about the periodic table with hydrogen, einsteinium and nobelium on it.

The table valuable to me is the “Callan Table of Periodic Investment Returns,” published by Callan Associates.

This table shows the annual returns of eight market indexes, ranking them vertically in a column from the best return for the year to worst.

Every year, a new column is added, and 20 years of history are shown.

Each index is represented by a different-color box. And so as each year is tabulated, the colored boxes are stacked in a different order.

The indexes Callan uses are the largecap S&P 500, the small-cap Russell 2000, as well as the growth and value subsets of each. Also shown is the Europe Australia Far East Index and bonds.

The table looks like a colorful quilt and provides an instant visual image of strength or weakness of a particular area of the market.

See for yourself. When you are in front of your computer, Google “Callan Periodic Table.” Click on the first link, and it will come right up.

When you bring up the table, a few trends pop right out of the quilt.

One thing that is obvious is that, in the last 20 years, the bond market has been in the bottom half of the class 16 times.

Bonds lead stocks only when markets are swooning, which is why they generally bring up the rear.

Another observation is, when one stock market sector leads for a few years, that group will often fall out of favor for the next few years, then rebound up near the top again.

For example, the EAFE Index led the pack in 1987 and 1988, fell to the bottom for the next four years, went back to the lead in 1993 and 1994, only to fall to the bottom again in 1995 through 1997.

The pendulum of popularity swings back and forth, although sometimes the group stays popular a few years in a row.

In the 1990s, small-company stocks were the darlings in the first half and went out of favor in the second half.

In this decade, the small-cap stocks have again climbed to the top.

For the last seven years, one group has been shunned and finished year after year in the bottom quartile.

The laggard has been the large-cap growth stocks and, as in “The Scarlet Letter,” they are depicted on the table with the color red.

For the last three years, the EAFE Index and the value stocks, both large and small, have risen to the top of the table while growth stocks have been near the bottom.

Buy the shunned large-cap. The scarlet box will rise back to the top of the periodic table.

Thinking back to chemistry class, there was one great thing I took away. I met my wife!

Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.

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