The back-and-forth pendulum that saw value stocks outperform growth might be ready to go back the other way for good. The NASDAQ, fueled by growth names, is in an ascending triangle formation, leading to a monumental breakout based on the part of the gap at its largest point of the formation.
The breakout can be to the up or downside, but if upside momentum in technology names continues, we could see a strong double-digit move higher.
NASDAQ Composite
The question is whether such a breakout comes at the expense of value names – many of which took it on the chin yesterday.
It is amazing how quickly blue-chip names that are not usually high Beta have moved. First on the upside, and yesterday to the downside. This is a tough market to be disciplined. But I think we could see funds go to work in the broad market with growth in the driver’s seat.
Message of the Market
The S&P 500 tried to finish higher, but at the last moment, it lost its grip. Still, it was a valiant session that saw all the norms tossed out the window. Financials were supposed to be up 2.96%, not down that much, and crude oil should have held its gains but struggled again, and oil stock got hammered.
By the way, those who think it’s okay that Energy (XLE) and Financials (XLF) were hammered since those sectors are up so much this year should consider they are down 37.3% and 4.1%, respectively, since the start of 2020. XLE is down almost 50% from a peak in 2014. Nobody starts from scratch on January 1st of a given year, so be careful not to let yearly stats sway your thinking.
S&P 500 Index | -0.04% | |
Communication Services XLC | +0.42% | |
Consumer Discretionary XLY | +0.38% | |
Consumer Staples XLP | +0.36% | |
Energy XLE | -3.40% | |
Financials XLF | -2.96% | |
Health Care XLV | +0.76% | |
Industrials XLI | -1.54% | |
Materials XLB | -2.23% | |
Real Estate XLRE | +0.38% | |
Technology XLK | +1.16% | |
Utilities XLU | +0.55% |
Market Breadth
Blue-chips names were more like black and blue yesterday, enduring some big individual hits.
Market Breadth | NYSE | NASDAQ |
Advancing | 1,158 | 1,882 |
Declining | 2,152 | 2,396 |
52 Week High | 141 | 120 |
52 Week Low | 25 | 36 |
Up Volume | 1.45B | 2.39B |
Down Volume | 3.88B | 2.14B |
Big Tech Is Back!
Look at those big Tech, Communication Services, and Consumer Discretionary names that stand out big-time.
To see the chart, click here.
By the way, the 30-year bond essentially collapsed.
30 Year Treasury Bond Yield
Portfolio Approach
We added to Financials yesterday and took profits in Industrial this morning in our Hotline Model Portfolio.
Today’s Session
Futures were relatively calm with the NASDAQ edging higher when James Bullard went on CNBC to present a hawkish case for hiking sooner than later. The associated role was almost comical. I think I saw a scene like it in the remake of Dick and Jane starring Jim Carrey. By the time, the interview was over, everything was getting slammed. That move reveals how vulnerable the market is, but I suspect buyers will still pick up the stocks that they wanted to own before Bullard essentially gave his usual talking point - the guy is a hawk.
Conspiracy theorists might say Powell & Co wanted him to go on to soften the eventual blow, but I do not buy that.
Please do not get caught up in the wild swings -particularly on micro levels- because nothing has really changed, and it won't for a long time.
Yes, growth is back in favor and should take the lead.
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