Op-ed: Sector leadership is in flux. How investors can navigate a directionless market


It’s late August, so the market is supposed to be on vacation like so many of us.

However, considering that since the pandemic started, no one really keeps track of what month it is – how was the holiday party last winter, your birthday party, or the company summer outing? – we shouldn’t assume that the S&P 500 or any other index is keeping close tabs on the calendar, either.

So, what has the market been doing lately? The answer from 20,000 feet would be “grinding higher.” Through Aug. 20, the S&P had climbed 18.3% year-to-date, 6.8% in last three months, and 2.7% over the past month.

However, under that placid and upward sloping surface lies some serious sector and theme rotation. The table below illustrates some of these dramatic shifts. Energy and financial services were the market darlings early in the year, but the spigot shut abruptly in May. Oil and gas stocks are roughly tied with the overall market and down nearly 12% for the past three months as of Aug. 20. Similarly, the financial sector lost steam as the March climb in interest rates stalled and reversed.

Rotating into and out of favor
By mid-May the perennial winners of the past decade, technology and communications services, moved back into vogue, staging an impressive comeback to position both groups ahead of the market. This trade also began to tire by the end of July, leaving the major digital players in limbo over the past month.

The market is only up 2% in the past month and a half, or what we can easily lose in a day. What has been working is a mix of sectors, mid-sized market caps, and styles.

Of the top 25 performing stocks in the S&P 500 for the past six weeks, ending Aug. 20, only three had market values of over $200 billion. The value of the entire cohort could fit into Microsoft’s $2.3 trillion capitalization.

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