The dominant theme driving the market since the Nasdaq topped on Feb. 16 has been a rotation out of growth stocks and into value names. Reopening of the economy combined with a jump in interest rates and inflation fears has been the primary catalyst.
On Monday, there were indications that this rotational action was started to cool, but the reason for this appears to be concerns that COVID cases are starting to grow again in the U.S., and Europe sees extensions of various shutdowns.
These may just be short-term worries as vaccines continue at a brisk pace in the U.S. but what we saw on Monday was a return to the action that persisted during much of the crisis last year. Growth stocks such as the FATMAAN names were once again a safe haven while reopening plays like traditional retail, airlines, financials, and energy struggled. In addition, some of the speculative sectors related to bitcoin also did poorly, but the NFT group remained hot.
Most significantly, on Monday, bonds bounced back and are now well off the lows that they hit on March 18. It is likely inflationary fears are not over, but the market is working on pricing them in, and the action on Monday indicates some success in doing so.
It is a sloppy situation out there right now, with the rotational action looking very muddled. Growth names are seeing some dead-cat bounces, speculative action has narrowed and cooled, and many of the value names are correcting after a good run.
My main focus right now is trying to find themes that will be sustained. The NFT stocks will be a focus, but there isn't much else working right now. I think SPACs are pretty washed out and that cannabis is trying to find support, but those are bottom-fishing plays and not momentum trades right now. Bitcoin-related names are under pressure, but we have to watch for a bounce in that group eventually.
It is a difficult trading environment right now, which requires patience and a more selective approach. The market is trying to transition back to 'normal,' and it is not an easy or smooth task. Watch positions closely and make sure you protect capital while we wait for the process to continue.
We have a soft open on the way. Bonds are bouncing, but that is causing a reversal of the recent rotation.