In short, LEADERSHIP!

It’s tough to predict what combination of favorable developments will revitalize our ailing economy and stock market.

The best we can do is look at the past and draw conclusions to shed some light on our current dilemma. That however is easier said than done, considering that we are dealing with some atypical conditions.

Less than 6 month ago, the Dow Jones (Ticker: DIA) hit an all-time high of 14,280. This coincided with some of the highest prices in gold (Ticker: GLD), oil (Ticker: OIL) and many other commodities.

Equities and gold (along with other commodities) have been moving in tandem for years. This is unusual, as decades of past performance reveal an obvious disconnect of performance between gold and equities.

Why would the Dow hit its all time high at the same time oil prices reach their all time high? High oil prices have the propensity to stifle the stock market much more than propel it.

However, if history does serve as a guide, we are looking for leadership to fuel some sort of a sustainable rally in equities. Leadership starts out with individual stocks, transcends into entire sectors and eventually carries over into other sectors and the overall market.

The most meaningful leadership comes from the “heavy-weight sectors”.

Financials (Ticker: XLF) have a 17.65% weighting in the S&P 500 (Ticker: SPY), followed by Technology (Ticker: XLK) with a16.73% weighting.

We’ve seen such leadership in the late 90s, when Cisco (Ticker: CSCO), Intel (Ticker: INTC), Microsoft (Ticker: MSFT) and many more drove the S&P 500 and Nasdaq to levels never seen before and not seen since.

We saw a brief glimmer of leadership again just about 6 months ago when Bank Of America (Ticker: BAC) and Citigroup (Ticker: C) hit all time highs helping the Dow to break the 14k mark. Leading the way however were Google (Ticker: GOOG) and Apple (Ticker AAPL) with spectacular runs to $747 (GOOG) and $202 (AAPL) a share.

With the bursting of the housing bubble and sub-prime mortgages hitting the fan, shortly after many Financials hit a 52 week or all time high, it is unlikely that Financials will provide the push needed to move the stock market higher once again.

What about Technology? After a serious correction, Google and Apple now trade at around $444 and $140. Microsoft, Cisco, Intel, etc are still far away from their all time highs, established in or around 2000.

The next largest S&P 500 sector is Energy with a 12.85% weighting. Leadership coming from this sector would likely be linked to higher oil prices which won’t help the US economy.

Healthcare, Utilities, Consumer Discretionary, Consumer Staples, Materials and Industrials are the remaining US sectors, none of which seem to possess the capacity to lead the stock market to sustainable, higher grounds … at least for now.

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