Some stock sectors thrive when an economic recovery gains traction. Industrials tend to perform well due to increases in the demand for capital goods. In a similar vein, consumer discretionary companies spike alongside improvements in employment data, where people spend more of the money they make.

One can visualize the above-described outperformance of cyclical sectors by charting corresponding ETFs over the initial six years of the current economic recovery. The Guggenheim S&P 500® Equal Weight Consumer Discretionary ETF (RCD) as well as the Guggenheim S&P 500® Equal Weight Industrials ETF (RGI) outhustled the S&P 500 SPDR Trust (SPY). The cyclical segments also performed better than (or the same as) non-cyclical sector ETFs like Guggenheim S&P 500® Equal Weight Consumer Staples (RHS) and Guggenheim S&P 500® Equal Weight Utilities (RYU).

When an economy loses steam, however, non-cyclical segments like utilities and consumer staples provide better risk-adjusted results. Since June of 2015,  both of these sectors – staples and utilities – provided late-stage bull market gains as well as relative safety. Industrials and consumer discretionary have not; the S&P 500 SPDR Trust (SPY) has not.

How might you have anticipated a slowdown in the business cycle back in June of 2015? Market internals.

In my June 2, 2015 commentary, Tactical Asset Allocation Changes? Track the Exchange’s Advance-Decline (A/D) Line, I wrote: “Since late April, the number of declining stocks have started to put pressure on the number of advancing stocks.”  In my July 28 article, Remember July 2011? The Stock Market’s Advance-Decline Remembers, I explained that more individual securities were losing ground than gaining it; indeed, market breadth was rapidly deteriorating such that there were more underachievers than overachievers. And prior to the meltdown in mid-August, I suggested that waning economic data, exorbitant valuations and crumbling market internals meant that we had likely witnessed an intermediate-term market top. (Review Market Top? 15 Warning Signs.)