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Bull markets correct through sector rotations; many and frequent rotations that can spin your head off if you try to keep up with them on a weekly basis. A couple of weeks ago, we saw capital leaving tech and healthcare and moving into the so-called “old-economy” sectors. Last week, we saw a rotation from hardware to software.
After a major rally, semiconductors are pulling back. Intel’s revenue projections are declining. Xilinx’s growth is slowing down. The semiconductor index (SMH) is up 33% year-to-date. A pullback is absolutely normal. All trends need pullbacks; otherwise, they cannot last long.
In the meantime, software stocks are finally waking up and starting to break out. Many of them are scheduled to report earnings in the next few weeks. Expectations are certainly quite elevated. Maybe, this is why we are not seeing a very enthusiastic market reaction to solid reports – AMZN, NFLX, MSFT, FB, etc.
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