As the first week of the second quarter unfolds, telecom stocks remain the clear leader among the big-cap equity sectors. For the year through April 4, the S&P 500 telecom sector is up more than 14%, or three times above the S&P 500’s rise in 2006. Even energy, which remains hot but in second place, hasn’t been able to keep up, posting a 10.6% rise so far this year.
The lone sector that’s lost ground thus far in 2006 is utilities, which backtracked ever so slightly. That’s hardly surprising, given that this is an interest-rate sensitive sector and the price of money continues to rise.

Among mid-cap equity sectors, industrials are on the leading edge of performance, rising 17% so far this year, or more than twice the gain for the S&P 400 mid cap index. But the bullish aura of telecom shines brightly in mid caps too, with the sector in close second place among mid caps by way of a 12.2% rise through April 4. The bottom sector performer in mid caps is health care, ascending by just 1.5%.

The real action this year is in small caps, which is leaving its larger brethren in the performance dust. The S&P 600 is up 12.5% year to date, with the leading small sector–materials–posting a sizzling 27% rise. The small-cap effect is so potent that even utilities in this arena are showing gains in both the mid- and small-cap indices.

If interest rates keep rising through the spring, one might wonder if small-caps are due for a correction. But for the moment, Mr. Market’s not interested in considering things that could go wrong.
Copyright 2006 by James Picerno. All rights reserved.