The markets in December show more of the same theme we have been seeing over the last couple of weeks, namely a rotation into laggards. Whatever hasn’t been working YTD is now outperforming significantly.
We are seeing investors selling into strength, like IT, communication services and rotating into different sectors, like healthcare, energy and consumer staples.
Whether it is legitimate that unloved areas bounces a lot, will it keep going? The rotation is natural progression given such bifurcation, such big group of laggards in the market all year. Right now the bullish sentiment is huge.
But it is double edge of sword. We could not ignore the fact that the market has been too strong, it might exhaust itself, maybe it will close to the beginning of exhaustion. But the rates will come down, it has given a lot of steam to this rally and the growth stocks, it will continue. The valuation of Mega 7 are dramatically ahead of not only the equal weight of S&P, but S&P 500 itself.
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by- ANDREW SMITH
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