Investing Guru Laszlo Birinyi Debunks One Of The Biggest Myths In The Stock Market Today

When people are feeling good about the economy, you might expect the more economically sensitive (i.e. cyclical) stocks to perform a whole lot better than the non-cyclical stocks.

Indeed, some stock market skeptics have noted that non-cyclical, or defensive, stocks have actually been outperformers during this rally. And as such, they warn something is amiss and that the market is inherently unstable.

But stock market veteran Lazslo Birinyi concludes that these worries are misplaced. He took a close look at the historical data.

"More than a few have grumbled (including us) over the fact that the much thought of defensive sectors (health care, consumer staples and utilities) have been the leaders this year," he wrote in his blog today. "But contrary to the current thinking it is not unusual for a defensive sector to be one of the three top performing sectors in an up market."

He provides a table and some commentary:

As shown below, there have been 26 years since 1982 where the S&P 500 was positive. In twelve of those years, health care was one of the three best performing sectors, while consumer staples was in the top three ten times. Utilities have only been best six times, but it should not surprise anyone that in a low interest environment a sector with a 3.7% yield is one of the best performing.

Myth debunked.