• The S&P / ASX 200 ASX:^AXJO (XJO) is up by 4.7% to start the year.
  • The consumer discretionary, materials and real estate sectors lead the pack.
  • To kick off 2023, defensive trades lag behind the more aggressive stock plays. What is driving this action, and what might create a drag on this theme going forward?


Starting the calendar year 2023, all but one of the 11 stock sectors that form the Australian stock market is higher.

The only laggard is the S&P/ASX 200 Utilities ASX:^AXUJ (XUJ) sector, down 3.4%, traditionally a more defensive play for investors in times of uncertainty.

Power generators and utility service companies generally operate a simple and dependable business model on thin margins.

Investors turn to XUJ when they’re unsure where to put their money to keep it safe without expecting much in return.

When XUJ is lagging behind the broader index, one can surmise that investors are looking to allocate capital. On average, investors are confident that the aggregate market is growing and generating more cash than the humble utility.


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This is the case in the first few weeks of the year. XUJ and the equally dependable S&P/ASX 200 Health Care ASX:^AXHJ (XHJ), up 1.6% on the year, are lagging behind the XJO, up 4.7% so far in 2023.


Out in front in 2023 is S&P/ASX 200 Consumer Discretionary ASX:^AXDJ (XDJ), climbing 8.1% on the year. Closely following is the S&P/ASX 200 Materials ASX:^AXMJ (XMJ), which is up by 7.7% for the year on Tuesday morning.

The consumer discretionary sector contains companies that benefit when times are good, and there is expected to be a little extra cash in the back pocket of the average consumer. Wesfarmers Ltd ASX:WES (WES) and Aristocrat Ltd ASX:ALL (ALL) form the backbone of this group.

The expected steadying of interest rates and a rosier outlook for the consumer and disposable income is providing a boost to real estate. S&P/ASX 200 Real Estate ASX:^AXRE (XRE) is up 6.2% as of Tuesday morning.

Reading between the lines

The improved outlook in stocks is centred around the increased likelihood of a milder global recession with steadier employment and moderating price inflation.

Lower prices and high employment generate money to spend on materials, consumables, and real estate. For this reason, these sectors have been the big winners so far this year.

Sticky interest rates and uncertain technology spending in corporate are holding down tech stock valuations. S&P/ASX 200 Information Technology ASX:^AXIJ (XIJ) is up a modest 1.6% this year, performing less well than the consumer focussed sectors and the broader XJO.


The future is always uncertain. An extended cold snap over Europe and North America, a considerable escalation of the conflict on the European continent, and a reversal of Chinese COVID policy all have the potential to undo the ASX sector moves of the last few weeks.

The stock market is pricing in the higher probability of avoiding a global recession combined with the turning point on prices. That does not mean it is inevitable that inflation is headed lower and interest rates will follow; it is now just more likely.