Squaring S&P 500 sector performance with the ISMs & AI

Once upon a time, the relative performance of two baskets of ‘pure’ cyclical and defensive sectors in the S&P 500 closely tracked a GDP-weighted index of headline readings from the ISM manufacturing and services surveys. In recent years, though, the relative performance of the baskets has painted a far rosier picture than the surveys about the economy. We suspect that’s due to AI’s growing influence on sector performance.