The word of the day was 'rotation.' Optimism about the effectiveness of the Covid vaccine and an eventual return to 'normal' triggered massive rotation. Part of the rotation was out of technology stocks that flourished during the Covid crisis and back into things that suffered like airlines, hotels, oil, cruise lines, Disney (DIS) , hospitality, etc.
Another part of the rotation was out of things that have benefited from a sluggish economy and low interest rates like bonds and back into banks and financials that are seeing a better yield curve.
Speculative stocks and bitcoin also suffered, but the Russell 2000 (IWM) held up well as some new names stepped up. If you have been pursuing high momentum trades recently, then you probably had a tough day today. There was rotational all over the place, and it was the laggards and out of favor industries that stepped up while the winners and leading groups took a beating.
Typically these sorts of rotations don't go too smoothly. I expect to see some reversals in the action in the near term, but it makes for difficult trading as the action is quite choppy.
What was most significant for traders that have been having good success with stock picking lately is that the character of the action shifted. The DJIA, IWM, and (SPY) all held up well, but under the surface, technology names and the high momentum small-caps did poorly. There was even some talk that the small-cap rally is now over, but I believe that may be premature.
The key going forward will be finding the themes that have some staying power. The rotation today was strong evidence that market players are looking for this shift to continue.
Have a good evening. I'll see you tomorrow.