“A year ago, every stock-market sector was down, all but one posting double-digit losses. That followed 2001, when eight of the 10 sectors in the Dow Jones U.S. Total Market Index fell. Even in 2000, when many stocks did well despite the piercing of the tech-stock balloon, six sectors fell,” writes Ken Brown in today’s Wall Street Journal.

“With 2003 in the books, one memorable statistic is that nearly every sector in the market rose, a badge of honor the market hasn’t worn since 1997. Even the pathetic telecom sector managed to squeak out a 3.5% rise, which, given that it has lost 67% since the end of 1999, can be viewed as either heartening or depressing.”

“Indeed, all but one of the 87 industry groups in the Dow Jones U.S. Total Market Index was up last year — the one loser being fixed-line communications, which includes the Baby Bells and long-distance phone companies, and was down just 4%.”

” ‘The old saying is a rising tide lifts all boats,’ says Sam Stovall, chief investment strategist at Standard & Poor’s.”

“Until Eliot Spitzer’s mutual-funds crusade shut them down, late-trading hedge funds were the only known way to turn back the clock on the stock market. So this information is useful only for what it tells investors about the future, and that is what is absorbing Wall Street’s strategists this time of year. The rough consensus is that the same sectors that led the market last year — economically sensitive areas like technology, consumer cyclicals and industrials — are likely to continue to lead the market through the first half of this year. The assumption, which is shared by most economists, is that the economic recovery stays strong and corporate profits continue to rise.”

“The split comes in midyear, though no one claims any kind of precision on the timing. Stock-market bulls see the same sectors continuing to rise, though at a much slower pace, while other sectors that are less sensitive to the economy will start to close the gap on the market leaders.”

“Those who are less sanguine about the market’s prospects say a weakening economic recovery or rising interest rates will jab the market and the sectors that have led the recovery will get hit. They are especially concerned about technology, which rose 50% to lead the market in 2003. The only way for investors to hold on to the early year gains in that scenario will be to shift into defensive stocks such as consumer staples and health care.”

” ‘Right now, we’re positive on cyclical, industrial and select consumer discretionary stocks, but we’re also telling people that there’s a transition by the time we reach the second half,’ says Tobias Levkovich, Smith Barney’s chief U.S. equity strategist. Mr. Levkovich, who came within four percentage points of nailing the S&P 500’s 2003 gain with his July 2002 prediction, says the data on profits and economic growth will become clearer in the second quarter. ‘By midyear, I suspect we will have to shift into a more defensive posture,’ he says.”