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.
While biotech, healthcare, and some software stocks are under pressure, the so-called old-economy sectors – finance, manufacturing, and transportation, are shining. Money never sleeps, indeed. It just rotates from one sector to another.
The Nasdaq 100 is at all-time highs led by the enterprise software giant Microsoft. Google and Amazon are not too far behind – both of them are setting up for potential breakout and have earnings due soon. Apple is back to a trillion-dollar valuation.
The current bull market continues to correct through sector rotation. While money is flowing into financials, semiconductors, energy, and software, healthcare and biotech have been under pressure as of late.
Will Disney+ disrupt Netflix or the new online streaming service is not a big positive for Disney and neutral for Netflix. We will know a lot more about how the market perceives it after Netflix’s earnings on Tuesday.
We also cover athleisure stocks – NKE and LULU are consolidating near all-time highs.
Bull markets often correct through sector rotation. When many leading enterprise software stocks were hit last week, the market averages didn’t skip a beat. The money just rotated into other sectors – semiconductors, energy, financials, retailers, biotech.
The dips are still welcomed as buying opportunities by many. The S&P 500 and the Nasdaq 100 are less than 2% below new all-time highs. The U.S.-China trade deals seems to be priced in. In other words, expectations going into the next earnings season, which starts next week, are high so companies better not disappoint.
The dips continue to get bought for the most part. The major large-cap U.S. stock indexes, QQQ and SPY spend the last couple of weeks in a tight consolidation and are potentially getting ready for another leg higher.
Market breadth is still healthy. We see strength in restaurant stocks like CMG and MCD, fashiology names like LULU, NKE, and AAPL, digital payments, biotech, emerging markets, China, etc.
One of the main warning signs right now is the continued underperformance of small-caps. Russell 2000 is still struggling below its 200-day moving average. The other worry is the coming massive wave of supply via new monstrous-size IPOs like Lyft, Uber, Pinterest, and others.