How can investors navigate a market constantly in sector rotation?
It’s been a wild 8 months. Yesterday, the NASDAQ index — largely represented by tech companies — broke an all-time high and passed 15,000.
At its high, the market traded up in 2021, but gains were scattered throughout different sectors — with the market rotating between small call, large-cap, growth, value, reopening and now back to COVID-benefiting stocks.
- 2021 YTD returns: Financials — 27.5%, Communication Services — 24.5%, Energy 20.1% (vs. S&P 500 — 18.3%).
- Last 3 months returns: Tech — 13.8%, Communication Services — 9.7%, Health Care — 9.7% (vs. S&P 500 — 6.8%).
- Last month returns: Utilities — 6.4%, Health care — 5.6%, Materials — 4.3% (vs. S&P 500 — 2.7%).
At an individual level, some of the top-performing stocks in recent months are hardly related to each other — Nucor (steel industry), AMD (semiconductors), Moderna (biotech), Paycom (software), etc.
Looking forward: Instead of chasing trends and sectors where investors risk buying in near the peak, here’s what Karen Firestone recommends (via CNBC):
- Don’t commit to one group: It’s fine to own both growth and value stocks.
- Own companies that’ll thrive 2-3 years out — at a reasonable valuation.
- Own companies with pricing power (i.e. Netflix, Salesforce), which can increase prices without losing customers if inflation continues.
With the typically volatile summer period ending soon, the market could be finally picking a lane (🤞📈).