Many market participants will be happy to see the end of the first quarter of 2021. While the indices managed some gains, it was a transitional quarter as the COVID crisis starts to wind down and the economy begins to slowly return to normal.
There was a great amount of rotational action due to growing concerns about inflation and a shift from work-at-home stocks to reopening-the-economy names.
Traders started the quarter in a euphoric mood as they aggressively traded themes such as special purpose acquisition companies (SPACs), cannabis, gambling, solar energy, electric vehicles, biotechnology and growth in general. The positive mood was reflected in the ARK ETFs, such as ARK Innovation ETF (ARKK) , which hit a high on Feb. 16 before going into freefall.
The major indices covered up an aggressive rotation correction that saw many stocks fall into a bear market as they dropped 30% or more from the highs they hit earlier in the quarter.
A rise in interest rates caused additional consternation, and to cap things off a collapse of a major family office badly burned several large investment banks.
The market has been struggling with this transition for several weeks now as investors reallocate, rebalance and try to position for what is likely to be some robust economic growth in the months ahead.
The recent action has been macro-driven and has rendered individual stock picking irrelevant. All the newly minted individual traders quickly learned a painful lesson that individual stock selection doesn't work as well when overall market conditions are not cooperative.
We are likely to see some pushing and shoving here on Wednesday as some final end-of-the-quarter moves are made. The big question is whether there will be more interest in stock picking once again. Small-caps did bounce back Tuesday and breadth was favorable, but traders lack confidence now and are tentative and uncertain at this point.
We have a mixed start on the way as market players wait to see how things develop before they make their next moves.