Bull markets correct through sector rotation. This is exactly what happened last week. While many tech stocks pulled back to their rising 20 and 50-day moving averages, we saw capital rotating into other sectors – transportation, solar, medical devices, homebuilders, biotech, gold and silver miners. In other words, the money is not leaving the market; it’s merely rotating into other sectors. This is why the dips in the indexes continue to get bought ferociously.
Positive results from Moderna’s vaccine study let to a one-day hefty rally in the industries that were hit the worst by COVID – casinos, hotels, restaurants, retailers, airlines. The problem is that they never followed through. On the contrary, we saw stocks that benefit from the rising COVID cases rallying for the rest of the week – VXRT, NVAX, DVAX, QDEL, APT, etc.
The stock market continues to boosts the winners in a social-distancing and work-from-home world. Stocks like AMZN, SHOP, NFLX, PTON have accelerated their ascent.
Speaking of frothy, SPACs (special purpose acquisition companies) are still on absolute fire as liquidity is chasing momentum and fairy tales.
Large-cap Chinese stocks joined the bull party last. BABA had a major breakout of a 3-year base which boosted the interest for small-cap Chinese stocks.
Every time there’s an announcement about a breakthrough in a covid vaccine or drug, so the so-called old-economy sectors of the economy bounce – financials, retailers, transportation and leisure, etc. We saw it again last Friday. Let’s see if this time lasts more than a day and we see a temporary rotation from digital to non-digital names.
The S&P 500 is setting up for a potential breakout and a few good earnings reports from the big banks might get it there.
The market continues to rise on both bad and good news for the economy. The dips are still getting bought ferociously. High-momentum software stocks just keep making new all-time highs squeezing short sellers out of their shares.
The Fed has expanded its balance sheet to record levels showering the market with unprecedented liquidity. The government has come up with a new stimulus package every couple weeks or so. The FOMO is in full force as more and more sidelined money is joining the party.
The number of new coronavirus cases is climbing rapidly and yet the death rate is declining. There seems to be a new vaccine breakthrough announcement almost every week. Every time it is announced, hotels, restaurants, and retailers rally for a day or two but can’t sustain their momentum for too long. By now it has become clear that no matter the breakthroughs, the world is at least 6-9 months away from a safe, tested, and working vaccine and even when we get one, it is not really going to stop some of the strong trends that accelerated due to COVID – e-commerce, working from home, etc. The money never sleeps. It always goes somewhere and major trends tend to last a lot longer than most expect.