What goes around comes around.
Investors facing a disappointing first quarter can take heart that within the overall stock market some of last year's dogs became darlings, relatively speaking, in the new year.
By the same token, several of last year's leaders are among this year's laggards.
Rotation among sectors of the stock market, and among individual stocks, is a perennial theme in investing.
Beware that your broker doesn't use the "rotation" pitch simply to churn your account.
Stocks are weak this year across the board, after a strong rally last year. Still, examining what's up and what's down within rankings of stocks provides important clues about the direction of a market.
For example, telecommunications services stocks -- the phone companies -- climbed in sector rankings in the first quarter, along with financial services.
But basic materials and industrial stocks slipped, despite optimism about the economy.
"The general economic outlook is the most important thing" affecting oscillation among stocks, said Janna Sampson, director of research at Oak Brook Investments in Lisle, Ill.
But the outlook is a moving target.
Late last year, the consensus of analysts called for moderately higher stock prices and gradually increasing interest rates in 2004. Those themes have not played out, as stock prices and interest rates headed south.
As a result, investor uncertainty has rotated stocks into and out of favor.
This should have been the time for a rally by so-called late-cycle stocks, such as Waste Management Inc. and Automatic Data Processing Inc., Sampson said. These stocks prosper when the economy and jobs are humming.
"We haven't seen that yet," she said.
On the other hand, stocks that benefit from low interest rates at the early stage of an economic rebound have done surprisingly well, she said. Financial services, utilities, homebuilders and home centers are top performers in the first quarter.
For example, Home Depot handily has outperformed Waste Management in the last 12 months.
The phone stocks had been the biggest losers since the Nasdaq bubble burst. But the sector has moved up in the rankings in the first quarter.
Similarly, utilities were the worst sector in last year's fourth quarter, as optimistic investors bought more ambitious technology stocks, according to rankings of 10 economic sectors tracked by Standard and Poor's.
But this year, utilities advanced and information technology stocks sank in the first-quarter ranking. Investor appetite for speculative technology stocks has waned.
What's the lesson? Sampson said the relative performance of major stock groups reflects newly revised forecasts, which now see low interest rates persisting and economic growth moderating.
Moreover, the currently favored stock sectors tend to produce steady earnings and dividends, favored by nervous investors.
"There is more risk in bond returns than in these high-yielding stocks at this point," she said.
The biggest surprise has been the slide in materials stocks, such as chemical producer Great Lakes Chemicals Corp., and specialty steel manufacturer Allegheny Technologies.
Among the 10 economic sectors tracked by Standard & Poor's, materials stocks fell to near the bottom on a year-to-date basis, after leading the pack in the fourth quarter of last year.
Despite optimism about global demand for basic materials such as steel, paper and chemicals, it's not clear whether companies in the sector will be able to enforce higher prices for their products, unless global economic growth accelerates.
Sampson said a possible bet this spring might be the late-cycle stocks that were supposed to blossom in 2004 but haven't.
"We still think that we will see jobs growing and interest rates rising," she said. "We aren't fearing that we will turn down into a recession."
Bill Barnhart is a financial columnist for the Chicago Tribune, a Tribune Publishing newspaper.
The ups and downs of financial rankings
Of the 10 economic sectors tracked by Standard and Poor's, three climbed at least five spots this quarter, while three dropped a similar amount.
4. Consumer discretionary
5. Info tech
8. Health care
1. Consumer staples
7. Health care
9. Info tech
4th quarter 2003 - 9
1st quarter 2004 - 1
4th quarter 2003 - 10
1st quarter 2004 - 2
4th quarter 2003 - 7
1st quarter 2004 - 3
4th quarter 2003 - 1
1st quarter 2004 - 10
4th quarter 2003 - 3
1st quarter 2004 - 8
4th quarter 2003 - 5
1st quarter 2004 - 9
Source: Bloomberg News