Bull Market Status Report:
What Sector Is No. 1 Now? |
Money & Markets Daily,
Reading any financial news website over the last six months, you’d think you were reading an issue of Wired.
With the explosion in the popularity of AI, it’s no wonder tech stocks have been dominating headlines.
Over that time, the Technology Select Sector SPDR Fund (NYSE: XLK) has gained more than 23% — propelling the benchmark S&P 500 index up more than 22% ... reaching all-time highs in the process.
But if you look deeper at the data, you’ll see a shift in the market. (That's not a bad thing for tech. In fact, it opens the door for Adam O'Dell's No. 1 tech stock for this rally.)
Today, I’m going to show you what that change means for you as an investor.
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A Lot Has Changed in 30 Days
There is no doubt that tech stocks have been on a tear over the last six months.
The data is undeniable.
The market is up, and it has tech stocks to thank for its impressive rise. Here’s how the 11 sectors of the S&P 500 have performed over that time:
As you can see, all but one sector (Utilities) has gained ground over the last six months. And tech stocks clearly led the way.
But in the last 30 days, something has changed.
Here are the returns of five top-performing sectors over the last month:
Notice anyone missing? It’s tech.
Over the last 30 days, energy, materials, industrials, utilities and financials have driven the market with gains of 3% or more.
Tech stocks haven’t done bad … they’re up 1.6%.
This shift tells me that, over the last month, investors are more confident this bull market has momentum behind it. They’re finding overlooked stocks to ride the rally higher.
The most recent American Association of Individual Investors survey showed that 43.2% of investors have a bullish sentiment toward the market over the next six months.
This is still above the historical average of 37.5%.
And investors haven't soured on tech, either. While some mega-cap tech stocks that carried the market last year have fallen out of favor a bit (as Adam pointed out with Tesla earlier this week), it’s opened the door for other opportunities in the sector.
Speaking on the AI mega trend, Micron Technologies Inc. (Nasdaq: MU) has soared almost 30% higher in the last 30 days after strong earnings and promising news for its AI chip business.
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That’s a surge of 39,900% over the next six years.
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How to Play This Recent Market Shift
There are a few questions you may be asking right now.
- Does this mean I shouldn’t be investing in tech?
Simply, no. This shift means that the once red-hot tech sector is cooling a bit, but it by no means suggests a tech rally is over. If anything, smaller stocks in the sector could be strong potential targets as the rally expands.
- Should I start buying the energy sector?
You should be cautious here. Oil prices have been moving up, and overall, the Energy Select SPDR Fund (NYSE: XLE) is “Bullish” on Adam O’Dell’s Green Zone Power Ratings system.
But, the largest holdings in XLE are ExxonMobil (XOM), ConocoPhillips (COP) and Chevron (CVX) and only one — COP — scores above 70 on our system.
For reference, XLK has the fourth-highest overall average score of all 11 sector ETFs on Adam’s system.
- If tech is still good, and I shouldn’t bet the entire farm on energy, what does all of this really mean?
What I see is an “expansion” of the market rally. Investors are moving their investments around to different sectors — or smaller stocks in the same sector as they seek continued outperformance.
And this is a good thing.
Think of it like basketball. If you are a team that relies only on 3-point baskets to win games, once an opponent shuts down your ability to shoot, you’re done. Your game has to be more diversified.
If the recent run-up of the S&P 500 was only fueled by the biggest tech stocks, the rally would come to a screeching halt if it hit a bump in the road.
By “expanding” the market, we’re ensuring that not one sector carries the load, but five or six of them do… and that’s a good thing for the entire market.
I’ll keep watching and let you know of any changes in the trend.
And if you're wondering what your next move should be, Adam has you covered. Click here to watch his brand-new presentation to see how he's following the Tech Titan into the right tech stocks for this expanding bull market.
Until next time…
Safe trading,
Matt Clark, CMSA®
Chief Research Analyst, Money & Markets Daily
Cocoa's Incredible Rally Threatens This Stock Market Winner
Over the past 20 years, Hershey Co. (NYSE: HSY) has quietly delivered Warren Buffett-like returns. The stock recorded an average annual return (including dividends) of 10.5%, which was slightly better than the 10.1% posted by Berkshire Hathaway (NYSE: BKR.A).
While Buffett's gains were driven by his stock-picking skills, Hershey's may have been driven by low cocoa prices.
The chart below shows HSY (the black line) and cocoa futures (the blue line). HSY's steady gains are now threatened by a surge in cocoa, which according to Bloomberg, “surged above an unprecedented $10,000 a metric ton on Tuesday before erasing gains and taking a breather from a historic rally that has seen prices of the key chocolate ingredient double this year.”
While cocoa futures may lose some of those recent gains, Hershey's and other chocolate makers are likely to face pricing pressures. Long-term put options on those stocks are an ideal way to trade this news.
— Mike Carr, Chief Market Technician, Money & Markets
Cocoa Futures Surge
(Click here to view larger image.)
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