The market saw some very aggressive rotation on Monday out of "growth" names and into "value." The growth names are mainly big-cap technology stocks and the FAANG favorites. These stocks comprise much of the Nasdaq 100 (QQQ) , so it is helpful to look at that index to see if there is more rotational action.
Yesterday, QQQ did not bounce back as well as the other indexes and now it is lagging again. All the FAANG names were in negative territory at some point on the day, so it will be interesting to see how the group acts into the close. If QQQ continues to lag, the likelihood is that the weakness will spread to other sectors of the market.
The problem with this sort of rotation is that value stocks are not very good leadership. They may outperform for brief periods, mostly at turning points, but sustained bull markets are driven by growth stocks like Apple (AAPL) rather than value stocks like JPMorgan Chase (JPM) .
When value leads, the market bleeds. When money rotates out of growth, it indicates that there is concern about valuation and that is not a bullish development. It can prop up the indexes for a while but ultimate outperformance by value stocks is a negative for the overall market.
One thing that complicates the current situation is the aggressive speculative trading that I keep writing about. This trading is a function of growth leading to some degree. The stocks that are moving are aggressively valued and are not the bargains that "value" buyers look for. If the shift to value starts to build, it will likely suppress the speculative trading.
We'll see how we close, but that QQQ is lagging and the Dow Jones industrial average is leading is negative.