Uncategorized, Weekly Update

Sector Rotation Adds New Fuel to Recovery Rally

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Published May 29, 2020


Bullish markets are characterized by sector rotation. There are always sectors that consistently lead the way. But investors can only push a single stock or sector’s valuation so high. To keep the bullish fires burning bright, they eventually have to find other sectors attractive enough to invest in. This week we saw a couple of powerful days of sector rotation. The stocks that had been beaten down the most suddenly became the stars of the show. The stocks that had been favored got sold off, at least for a few hours. The chart below shows how previously beleaguered financial stocks (circled) staged a strong two-day leap, quickly catching up to previously favored biotech stocks (orange line). The Nasdaq 100 (QQQ in green) and software (purple) recovered their intraday slides to remain ahead.

Sector Rotation

The strength in financial shares pushed the S&P 500 above its 200-day moving average for the first time since February, another positive for the bullish camp.

S&P 500 above its 200-day moving average

Our BUY signal has been in place for the entirety of this month, delivering solid gains to our subscribers; on top of the gains we experienced during the plunge in February and March. We are now some +20% ahead of the market year-to-date.

We don’t know what the market holds, whether it hangs on and rises further from here, or drops back to the springtime slump. However, we do have further confirmation that our models protect and grow our wealth, in good markets and bad.

Market Update

Investors returned from the Memorial Day holiday encouraged by reports of shelter-in-place lock-downs easing and amid further developments on possible Covid-19 drugs. Stocks popped +1% Monday with previously lagging stock sectors, like banks, energy, and materials, receiving the bulk of the buying. The Nasdaq showed only a fractional move, by contrast. Stocks added another +1.5% Wednesday with retailers performing well and the S&P 500 clearing the 3000 level for the first time in three months. Stocks dropped back modestly Thursday in a late-day selloff as President Trump renewed tensions with China over the latter’s recent change in national security laws for Hong Kong. The new laws imply further diminished independence for Hong Kong. Friday saw those China-U.S. concerns keep pressure on stocks in the early going. However, stocks rallied in the afternoon to close +0.5% higher on the day after President Trump’s news conference on possible sanctions of China was more tepid than expected.

Stocks posted another solid week of gains with the S&P 500 (SPY) lifting +3.01% while the Nasdaq 100 (QQQ) added +1.61%. The small-cap Russell 2000 (IWM) notched a +2.97% rise.

Warm wishes and until next week.