This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
There’s no doubt that Big Tech is in the bull market’s driver’s seat — but it’s got company.
Though the major indexes are narrowly in the green this October, they have been boosted by third quarter earnings from Bank of America (BAC) and Goldman Sachs (GS), which reported a big beat on investment banking fees.
More significantly, the so-called “fins” have rallied alongside three others — tech, consumer discretionary, and industrials — to outperform the S&P 500 since the Japanese yen-induced panic of Aug. 5. All four sectors are up about 15%, with a slight edge to tech. (The low is important technically because it marks the bottom of the year’s biggest decline — a quite normal 8.5%).
It might seem familiar — and perhaps a bit unnerving — that “tech is leading” once again after the concentration hand-wringing over the “Magnificent Seven.” But unlike other periods in this bull market — now two years old — tech has some company, thanks to money flowing, or rotating, into other sectors.
It’s a process as old as public markets. As the godfather of technical analysis, Ralph Acampora, CMT, famously quipped, “Sector rotation is the lifeblood of a bull market.”
Ralph’s nephew, Jay Woods, who is an executive NYSE floor governor and chief global strategist at Freedom Capital Markets, recently joined Stocks In Translation to break down the concept.
“Money’s not leaving the market, it’s just going from one sector to the next to the next,” said Woods, noting the strength in software stocks. He specifically highlighted cybersecurity plays like CrowdStrike (CRWD) and Cisco (CSCO) — both damaged stocks at one time that are now leading.
Woods reflects on Cisco’s round-trip journey right back to its dot-com bubble highs.
“I hate that I like Cisco right now,” Woods said. “I liked it in ’99, and it’s right where it was trading in 1999. That’s amazing.”
In fact, the tech sector leadership of today stands in stark contrast with earlier in the year, when the Mag Seven stocks dominated. Although perennial leader Nvidia (NVDA) is up 30% since the Aug. 5 low, IBM (IBM) is close on its heels — rising from its legacy tech ashes to fresh records.
For that matter, more than 20 stocks in the S&P 500 are doing better than Nvidia since the yen low, led by electric power company Vistra Corp. (VST) and United Airlines (UAL) — up 85% and 70%, respectively.
Many of these stocks are simply laggards that got beaten up in the 2022 bear market and left behind. But even among the overextended, there are still potential winners to be found.
“Put up a five-year weekly chart in utilities for me. Talk about a nice rounded base and then a breakout,” Woods said, adding, “[These are] not your grandparents’ utilities anymore.”
On Yahoo Finance’s podcast Stocks in Translation, Yahoo Finance editor Jared Blikre cuts through the market mayhem, noisy numbers, and hyperbole to bring you essential conversations and insights from across the investing landscape, providing you with the critical context needed to make the right decisions for your portfolio. Find more episodes on our video hub or watch on your preferred streaming service.
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