You wouldn't have to have watched Office Space to appreciate the humor in this, but have you ever been stuck in traffic on the highway in your lane that isn't moving. The lane next to yours is moving, so you change to that lane, only to have to slam the breaks as that lane stops moving? Meanwhile as you slam the breaks, the lane that you were just in starts moving. Rather than always switching to the flowing lane, I wondered if it would be better to move to the slower lane after driving 35mph for 30 seconds or so. I used to have an hour commute in the past and was always a little late or barely on time to work, so I put this to the test, and sure enough, it works. There were days when I was really lucky, I was able to sort of zip through congested traffic using this method. Well, oddly enough, investing in sectors tends to be analogous. Jack Schwager, author of Market Wizard did a study and found that if you take the sectors in the S&P like energy, retail, pharma, etc, and you pick the worst performing sector for the past 5 years, statistically speaking, you are much likely to outperform all the average of the other sectors in the next 5 years. If you pick the best performing sector in the past 5 years, you were likely to perform worse... and at best, you would perform average with more volatility and higher drawdowns. The reasoning behind that is as certain sectors get overheated, more supply starts to move in, thus bringing the price down. Take for instance, energy. Energy was a great performing sector for a while, but then fracking came online and saturated the energy markets. On the flip side, when certain sectors aren't doing too well due to too much competition, some companies start going bankrupt, and restructuring ensues. The strong hands come in and buy up the assets on the cheap, competition goes down, and then they start to do better. Jack Schwager also applied this to mutual funds within the same sector, as well as hedge funds. Certain investing strategies work great for a while, and then don't do so great, and then start doing great again. There's been a lot of talk now for the past couple of years how active managed portfolios are in the shitter now, and passive portfolios are doing much better. I predict that within a year or two, that will start to reverse, and you'll see active fund management making a comeback. Also, if Jack Schwager is correct, it would mean that the materials sector like commodities, and energy should be making a comeback. And after all, it's going to take quite a few commodities to build that wall and do all that infrastructure revamp that Trump is promising.
What you are talking about implicitly is mean reversion. If you split out the market by sector, the weighted average of each sector should equal the market. Both outperforming and underperforming sectors should converge to the market average in the long run.
Playing with models. Should you switch lanes in traffic? <https://playingwithmodels.wordpress.com/2010/06/24/should-you-switch-lanes-in-traffic/>
If you wish to test this theory further, you could try a few more bits. For example, always stay in the right lane. That is the lane where people exit and enter. So you'll get faster exits, but slower entries. Literally. Try it on the road sometime. The bit you are describing in physical commodities doesn't apply exclusively, however. The push-and-pull of the physical markets is always going to be caught in the middle lane of stop-and-go traffic, over the long-term. CL is currently stuck in the middle lane, and has been since January, with a few "break-outs" in the right lane as it were, getting bursts of speed. But look where it is right now. It could be getting stuck in a rut again, in the left lane where everyone is dopey and never goes anywhere.