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This time the bounce was led by small caps and “back-to-normal” stocks – not only financials and energy but also travel and leisure. Airlines were the best performing industry for the week followed by oil & gas, and entertainment. The market is acting as if Covid will be gone in a few months or at least its impact will be reduced. Either that, or we just witnessed just another quick sector rotation and short covering that won’t last long.
We saw a big spike in interest rates after the FOMC briefing last week. The Fed is acknowledging that inflation might be a bit higher and linger longer than previously expected. One small change in the Fed’s message can lead to a big move in financial markets which like to extrapolate and discount what could happen 6 months in the future. Long-term US Treasuries sold off and financials took off. With banks so strong, it’s hard to imagine SPY having any significant pullback any time soon.
Tech is not looking too shabby either. Software (IGV) and Semiconductors (SMH) never closed below their 50-day moving average and had a powerful bounce after the gap down last Monday. One would think that rising interest rates will hit richly-valued tech names, but so far we are not seeing any evidence of it. Stocks like U, SNOW, ZS, CRWD, BILL, ESTC, DDOG, ZI, TTD, AVLR, TEAM, CRM, DOCN, NET, NTNX, PLAN, SPLK, WDAY, PLTR, OKTA, DLO, etc. are either pushing higher or consolidating sideways. This is not a price action of a market worried about inflation too much.
Another thing that stood out late last week is the carbon emissions ETF – KRBN, making new all-time highs. This explains the strength in many electric vehicles stocks – TSLA, GOEV, LCID, FSR, etc.
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