Is It Too Late To Rotate?
Have you heard about the "sector rotation" going on? I'm sure you have, but if not here's a visual for you...
Growth stocks (technology) were once the leaders but over the last month, they have been under pressure. Meanwhile, value (energy, financials, and materials) continues to trend higher. How long will this last? Should you dump your growth/tech holdings and position in value?
It's difficult to tell how long this trend will persist but with energy and financials underperforming for such a long time, many investors lack exposure and this could continue to add fuel to this trend.
Does this mean you should rush out and sell your technology holdings and shift into value? That's not an easy question to answer and it's not really a fair question either as there are many factors to consider.
Value is breaking out and that's bullish. But, growth has had an incredible run and a correction or pullback was to be expected. It's still early innings and it's not easy to say how long this trend will persist. It's only been about a month since we've been seeing this rotation.
IVE (Ishares S&P 500 Value ETF) vs. VUG (Vanguard Growth ETF)
Is there a trade here? Maybe, for those that are nimble and have a shorter time frame. I prefer to look at the longer-term trend and as you can see growth has been the clear winner since the March 2020 lows.
On Tuesday we saw value pause and growth snap-back with a massive rally. But today value is back in the lead with growth slumping once again.
The conundrum that exists is that value is leading but also refusing to pullback or correct so buying here feels like chasing. And the problem with buying growth (technology/momentum) at current levels is the jury is still out on whether or not they have put in a bottom.
The narrative use to be as FAANMG goes so does the rest of the market. Not anymore. The current bull market continues to broaden across an increasing amount of sectors and industries, while at the same time many of the FAANMG names are down 10% or more. However, this broadening is a sign of a healthy bull market so for the time being it's a situation where stock selection becomes increasingly important.
Starting to Look 👀 Attractive on This Pullback - Walmart (WMT)
When markets correct I like to spend time looking for quality companies that might be on sale. Walmart looks like it could fit into that category.
Looking at the past three years you can see that 18% to 25% corrections have been a very reliable indicator of a potential bottom.
Gold Bulls Last Stand
Gold has been an absolute dog over the last seven months. After peaking in August the commodity slid 20% and the gold stocks (GDX) fell around 30%. However, bulls have stepped up to defend what I think is a make-or-break level for both the stocks and the commodity.
If prices can't hold above the recent lows, I think gold will be left out of the conversation for a long time.
However, current levels do provide an attractive area for a low-risk high reward trade on the long-side if the recent lows can hold. That's around $30/share for GDX and $1670 for gold futures.
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