E-mini S&P 500 (June): Settled at 4198.50, down 4.00
E-mini Nasdaq-100 (June): Settled at 13,648.75, down 37.75
If you only watch the benchmarks, then a terrific day for some sectors went unnoticed. Maybe you caught Crude Oil up 2.1%, alluding to Energy +3.93% as a bellwether to start the month, but did you see Real Estate +1.69%, Materials +1.39%, Financials +0.66%, and Industrials +0.42%?
2 weeks ago, we called for Tech’s rebound to outpace other sectors given the depth of its selloff, and it did, but for the last week Tech has done nothing. During this time, the Russell 2000 is up 3.8%, and we’ve been pointing to its leadership, targeting 2295. This brings us back to our ongoing discussion of a long-term thematic divergence and more specifically, we find an excerpt from 1 month ago describing exactly that very fitting:
U.S. benchmarks have diverged this week. The Dow set a fresh record high yesterday, whereas the Nasdaq is down 2.5% on the week and trading 4% from its record. As for the S&P, it’s trading slightly lower on the week, a blend of the 2.
On Tuesday, big Tech got trucked, but as one could imagine given the Dow’s record, many names within Energies, Industrials, and Materials are trading much higher on the week. The talk of rising rates has certainly weighed on Tech, but there are also various idiosyncratic themes ranging simply from air coming out earnings enthusiasm, to the chip shortage, and concerns of high multiples.
One conversation that we find ourselves having more often with clients is that at some point soon, broader index gains may not be so robust. For instance, what if the S&P is flat next year because Tech loses ground due to rising rates? At the same time, what if there are real inflation tailwinds and Crude Oil reaches $100? The Energy sector could easily gain 20%.
As we move closer to the Fed tightening policy, whether the end of this summer or not until the turn of the year, these are important conversations; we could see a continued divergence. How is your portfolio positioned? Do you want to have a call to discuss? Email us at email@example.com to schedule a time.
Think about this: the Nasdaq has gained 3.5% over 4 months now, whereas, since closing higher on February 1st, the Dow has added 15%, the S&P 12%, and the Russell 2000 8.5%! You can even dive deeper; the Energy sector is up 37% and Materials 24% over that time! If you’re sitting with a Tech-heavy portfolio and not rotating or tracking the sector flows, you could be leaving a lot of money on the table— not just over the last 4 months, but maybe over the next 4 years.
Switching gears, the U.S. Dollar gained ground overnight after a weak German Retail Sales read was coupled with broad risk-appetite vulnerability due to fears of a Covid-19 variant from India. Despite yesterday’s weakness, today’s rebound makes it unlikely the U.S. Dollar breaks either way before Friday’s pivotal Nonfarm Payroll report.
In a nutshell, yesterday’s ISM Manufacturing describes the current state of the economy; a strong headline expansion of 61.2% was coupled with prices holding at the highest level since 2008, but was met by a whiff on the Employment component, barely expanding at 50.9 versus expectations of 61.5.
Today, we look to Fed speak before tomorrow’s ADP Private Payroll survey and Services data. Atlanta Fed President Raphael Bostic, Fed Governor Lael Brainard, and Chicago Fed President Charles Evans, all 2021 voters, speak at an event at 1:00 p.m. CT.
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