For a little less than a month, the market has been undergoing a very vigorous rotational correction. This move was triggered by growing optimism about the reopening of the economy and growing pessimism about the potential for higher interest rates and inflation.
The move coincided with increasing concerns about the frothy action in SPACs, electric vehicle names, cannabis stocks, biotechs, and small-caps in general. Many stocks were in need of a correction, and the market finds a good excuse to deliver one just like it always eventually does.
Corrective action after the size of the runup off the March 2020 lows is no big surprise, but the extent of the rotation was unusual. On Monday, the DJIA gained nearly 1% and hit a new all-time high, while the Nasdaq 100 ETF (QQQ) declined 2.8%, falling more than 10% from its mid-February highs.
The rotation that is taking place is extremely obvious. Stocks that benefit from a "normal" economy such as airlines, hotels, travel, traditional retail, etc., are attracting buyers while technology names that flourished as the work-at-home movement gained strength are struggling. The FATMAAN stocks have been under steady pressure recently, with Apple (AAPL) hitting its lowest point so far in 2021.
Tuesday morning some of the rotational pressure is lifting, but the bears have the recent momentum, and there is concern that corrections in stocks like those that are held by ARK ETFs may continue. Rotational action does not usually occur very smoothly, and this is likely to continue in various ways for a while.
For many traders, the biggest challenge of this market is that it has been quite correlated with reopening stocks moving up together while work-at-home names are struggling. Many individual names have been under severe pressure without any regard for their individual merits.
In the early going on Tuesday, bitcoin is regaining its momentum and moving back over the $54,000 level, which puts the February highs of around $59,000 back in play. Nasdaq 100 stocks are bouncing, and there is a big bounce in bonds that is helping to drive the action.
Monday on CNBC, billionaire hedge fund manager David Tepper stated that it was "very difficult to be bearish right now" because he believed that the rise in interest rates was likely to cool as foreign bond buyers -- especially the Japanese -- took advantage of the volatility in currencies.
If interest rates stabilize, the rotational action is likely to slow, support will form, and the focus will return to better stock-picking.