Momentum Monday – Sector Rotation

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We saw a clear rotation into defensive sectors in the past week. Healthcare, utilities, and consumer staples – lower-beta stocks that pay relatively high dividends notably outperformed anything else. This happens when interest rates pull back and the market expects an economic slowdown. In the meantime, most momentum stocks, especially tech stocks, had quick pullbacks. We will know soon enough if this was just a temporary hiccup or the beginning of a bigger pullback. Mega-cap tech stocks remain harbors of perceived safety. GOOGL, AAPL, MSFT, META continue to show notable relative strength. This can also be interpreted as a defensive market move.

Inflation expectations have been gradually decreasing so far this year. The Fed officials like to regularly remind us that they are not done fighting high inflation. And they might have their point. OPEC cut oil production which cause a big upside gap in oil last week. Let’s see if this gap can follow through. There hasn’t been a lot of buying after the gap. Contrast this to the price action in gold, which after its big gap on March 13 hasn’t looked back turning gold miner stocks into momentum vehicles. They are all extended from a swing trading perspective and need some time to potentially set up again.

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