As of this Tuesday (3Month 23From a series of exchange-traded funds (ETFs)), energy stocks are still the best performing sector so far this year.By contrast, other sectors that rebounded strongly from March lows last year overshadowed in 2021. But in recent weeks, other lagging sectors have begun to show relative strength, suggesting that plate rotation may be brewing.

For now, the energy sector is far ahead this year. As of Tuesday's close, Energy Select Sector SPDR ®Fund (NYSE:XLE) was up 27.5% for the year, almost twice as much as the second-best performing industry-- Financial Select Sector SPDR ®Fund (NYSE:XLF)-- or the entire market (SPDR ®equity 500 (NYSE:SPY)). Year-to-date, SPY is up a modest 4.5 per cent.

One of the main drivers of the rebound in energy stocks is the expectation of a rebound in US economic growth. But the question is, after the market has digested expectations of accelerated economic activity, will the actual economic data be as strong as expected?

As Michael Arone, chief investment strategist at State Street Global Investment Consulting, points out:

As the market expects a rebound in demand, their shares are snapped up. But we need to see the actual data that follow. "

The latest economic data are not strong.Two broad measures of macro trends in the US were unexpectedly weak. First came the Philadelphia Fed's ADS business cycle index, which reflected a contraction in US output in the year to March 18. Of course, the index may fluctuate in the short term, so the latest weakness may just interfere with the data, but it can still provide data support for the market to lower expectations.

By contrast, monthly data from the Chicago Fed's National activity Index (CFNAI) are more reliable. February data updated this week showed that US production fell last month, the first monthly negative growth since the recession triggered by the epidemic in April 2020.

The CFNAI data may also be noise, with a temporary decline due to the rebound in the epidemic. From an optimistic point of view, with the promotion of the vaccination programme, economic activity will become more stable in the coming months, and the outlook is improving. From this point of view, these lagging data can also be misleading.

Taking into account the trend of new deaths of COVID-19 in the United States as of Tuesday, there has been a marked improvement over the previous period. The average 10-day death toll in the United States has fallen below the important daily threshold of 1000 for the second day in a row, the lowest number of new two-day deaths in four months.

Despite the recent weakness in the business cycle index, the near-term forecast for the first quarter of GDP, to be released next month, remains optimistic, although it is down from previous weeks. The Atlanta Fed's GDPNow model, for example, now expects output (real annualised rate) to grow strongly by 5.7 per cent in the first quarter, up from 4.1 per cent in the fourth quarter.

At the same time, there have also been some fluctuations in other backward industries, suggesting the possibility of switching between leading sectors.For example, the two worst performing sectors so far this year-Utilities Select Sector SPDR ®Fund (NYSE:XLU) and Consumer Staples Select Sector SPDR ®Fund (NYSE:XLP)-recorded the strongest returns in March, far outperforming the energy sector (Energy Select Sector SPDR ®Fund (NYSE:XLE)) and the SPDR ®stock market as a whole (NYSE:SPY).

Does this mean that the leading position of the energy sector is not secure, while other defensive sectors are catching up? It is not clear yet, but if economic data in the coming weeks are lower than expected, demand for utilities and essential consumer goods is likely to grow, and the energy sector will be the victim of this shift.