Headlines
|
|
A resurgence in uptrends for value-oriented cyclical stocks:
The market is witnessing a significant resurgence in value-oriented cyclical sector uptrends. This week, more than 90% of stocks in the Energy, Financials, Industrials, and Materials sectors closed above their 50-day average on the same day. Past occurrences of broad participation, like now, have historically led to above-average gains for the S&P 500 across all time frames.
|
Smart / Dumb Money Confidence
|
Smart Money Confidence: 28%
Dumb Money Confidence: 87%
|
|
Risk Levels
Stocks Short-Term
|
Stocks Medium-Term
|
|
Bonds
|
Crude Oil
|
|
Gold
|
Agriculture
|
|
Research
By Dean Christians
BOTTOM LINE
The market is witnessing a significant resurgence in value-oriented cyclical sector uptrends. This week, more than 90% of stocks in the Energy, Financials, Industrials, and Materials sectors closed above their 50-day average on the same day. Past occurrences of broad participation, like now, have historically led to above-average gains for the S&P 500 across all time frames.
FORECAST / TIMEFRAME
None
|
Key points:
- More than 90% of stocks in value-oriented cyclical sectors closed above their 50-day average
- Similar participation levels led to better than random returns in the S&P 500 over the next year
- From a sector perspective, a rotation from growth to value looks unlikely
Participation broadens in value-oriented cyclical stocks
We can remove the narrow market breadth wall of worry from our list of concerns.
For the first time since the low in October 2022, more than 90% of stocks in the Energy, Financials, Industrials, and Materials sectors closed above their respective 50-day average on the same day.
Similar participation levels preceded an upward bias in the S&P 500
When more than 90% of value-oriented cyclical sector stocks close above their 50-day average in unison, the S&P 500 tends to see additional gains that exceed the average return over the study period. Except for 1973 and the signals during the Dotcom bust, both of which took place in downtrends, drawdowns were reasonably modest.
Suppose we compare the forward returns for the value-oriented cyclical sectors to the S&P 500. In that case, there's not a lot of evidence to suggest that we should be thinking about rotating money to value despite the resurgence in uptrends.
Growth-oriented sectors like Consumer Discretionary, Technology, and Health Care outperform all other groups on a fairly consistent basis.
The standout performer in the cyclical industry group category was undoubtedly semiconductors.
Additional context
By examining signals that occurred when the S&P 500 was down more than 5% from a 2-year high, similar to the current situation, returns and win rates improved relative to the original study results.
What the research tells us...
The current uptrend in the stock market is gaining momentum thanks to the growing participation of stocks from value-oriented cyclical sectors. This resurgence in value stocks is undoubtedly a positive sign for the overall market environment. However, while bullish, it does not suggest we should rotate from growth to value. For now, stay with what's working, Technology and Consumer Discretionary.
Indicators at Extremes
Phase Table
Ranks
Sentiment Around The World
Optimism Index Thumbnails
|
Sector ETF's - 10-Day Moving Average
|
|
|
Country ETF's - 10-Day Moving Average
|
|
|
Bond ETF's - 10-Day Moving Average
|
|
|
Currency ETF's - 5-Day Moving Average
|
|
|
Commodity ETF's - 5-Day Moving Average
|
|
