Rotation Is The Lifeblood Of A Bull Market
Investors,
Financial markets continue to flex their muscles, with stocks, Treasuries, and corporate debt ETFs producing their best 5-month returns since 2016.
I remember being an investor in 2016, when asset prices seemingly celebrated the election of Donald Trump and the expectation of lower taxes, less regulation, and a general boom in fiscal stimulus measures. The risk of the election was in the rear-view mirror and investors could focus on what was actually unfolding.
Interestingly, this current rally hasn’t had an individual catalyst (and certainly not a political one), but has rather been induced by a clearer path of monetary policy, better than expected macroeconomic data, better than expected earnings data, and a general increase in risk appetite after extremely negative positioning in October 2023.
Without much surprise, the investors who failed to get bullish in the midst of November’s Zweig Breadth Thrust or the bullish continuation patterns in December remain bearish to this very day, citing an array of new data & concerns in order to validate their negative bias. Ironically, these bearish talking points are completely different than the bearish factors that they outlined in Q4’23, once again moving the goal post in order to support their case.
Those of us who have been open-minded, objective, and self-accountable have gladly participated in an uptrend while recognizing that risk management is still vital to protect our portfolios in the event that the current uptrend begins to unwind.
And so far, those results have paid off in 2024, based on the following YTD returns:
Dow Jones: $DJX +2.8%
S&P 500 $SPX: +7.3%
Nasdaq-100 $NDX: +5.9%
Bitcoin $BTC: +59%
Ethereum $ETH: +57%
Total crypto market cap ex-BTC & ETH: $TOTAL3 +43%
Will these results continue? I don’t know.
But I didn’t know that the results would be this strong when I went full-on bullish again in November 2023 and I focused simply on the aspects that I could control, notably how much risk I was willing to take and how tight my stop-losses would be.
So that’s exactly what I’ll continue to do in this market today, rather than trying to fight the trend and position against the strength that is occurring across asset classes.
In this report, I’ll focus specifically on how stock market dynamics are evolving and provide an update on how various sectors, industries, and investment themes are performing. This is an important & vital step in my process, in order to find strength on both an absolute and relative basis in order to diagnose how investors are positioning themselves for an uncertain future.
There’s a famous Wall Street saying that “rotation is the lifeblood of a bull market”, insinuating that investors rotate between sectors, industries, and themes within a broader uptrend.
This will be the theme of today’s report.
Let’s jump straight into it.
S&P 500 Under-The-Hood Metrics:
This weekly data is one of the reasons why I became so bullish in November and have continued to operate with a bullish lens since then… the fact of the matter is that S&P 500 internals have been strong for quite some time.
Nonetheless, it’s important to check these metrics on a regular basis to ensure that the internal strength is still intact.
These are the key metrics as of Friday, March 15th: