For the last several months, I have been working on and with a sector rotation dashboard I made. It's helped me get into the right sectors at the right time, and also get out when they start to turn.
Here's what I'm seeing for the week ahead.
**Broad market:** Average daily range plummeted in mid-June, so I am anchoring to 6-week strength here to evaluate broad market. During this time, investors and traders have not reached for risk as they did in April and May: low volatility and value have outperformed momentum, high beta, and growth.
This is useful context for me because I want my swing trades to double and run and this isn't the environment where I'm going to get much, or any, of that. As evidence, the trades I've taken lately are struggling hard to even go 10%. I am setting the expectation that this week will be the same until the market shows me otherwise, and so I'm not getting into as many new positions.
Switching to a last-5-days view, high beta and momentum and growth are bouncing some while still lagging. It's not enough for me to get excited about right now, but hopefully soon.
**Sector:** Energy, utilities and real estate are leaders over the last two and four weeks. It doesn't mean I want to pile into those sectors. Utilities and real estate are heavily weighted in the low volatility buckets, which I noted above as being leaders, so this matches.
Energy is obviously tied to ongoing geopolitical risk in the Strait of Hormuz and Red Sea. This pushes up inflation expectations, which pulls up 10Y yields.
Beyond these, healthcare is leading and staples are improving, so it's selectively defensive positioning but not full-on defensive flight to safety. Instead, it looks like the growth complex has been unwinding and money is flowing to value and defensives. Industrials, materials, and financials are also among leaders, which points to value.
**Themes:** A lot of the thematic stuff I track is more growth-oriented, which has been a hard trade. Two-week relative strength leaders are gold miners, crypto-related innovators, AI infrastructure, drones, and aerospace and defense, in that order. Gold and A&D both reflect the geopolitical situation mentioned above, perhaps drones too. There is also a belief among some that crypto is an inflation hedge. So these themes can represent pockets of potential growth picks that also overlap with some of the broader themes noted here.
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All in all, the picture is one of defensive positioning mixed with rotations away from growth. The names I am in recently are barely moving and hardly worth even entering since 3-10% moves are not worth the time or effort to find.
With earnings season kicking off though, the question is whether things can turn favorable again for momentum and growth. A few things I'd want to watch:
* Can growth and momentum relative strength improve over a longer period?
* ADR expansion could signal some movement
* Can geopolitical issues and yields ease?
* On earnings, can AI-related capex concerns abate?
* The list goes on...
*A note on the dashboard itself: I maintain it internally. To publish, I'd have to host it and that costs money and it's not like I'm getting paid for this. I share it around though here and on plenty of other channels.*
https://preview.redd.it/yrdrb8udvlfh1.png?width=1363&format=png&auto=webp&s=cbdead6b7853de3c5af0719b9edb509eb14389fa