So far, in 2021, most of the corrective action that has occurred has come in the form of rotations. The indices simply are not telling the story of what is really going on in the indices. If you looked at the indices since mid-February, there is no way you know that sectors like biotechnology, high-beta growth, SPACs, gambling, EVs, solar energy, and many more were deep into bear markets. A great illustration is the ARK Innovation ETF (ARKK) which fell about 37% before bouncing.
The important issue here is that if you want to understand what is going on in this market this year, then it is necessary to look at sectors and themes and not just the indices. The S&P 500 really tells us nothing about what has happened. It has pretty much gone up steadily for the last six months and has bounced off its 50-day simple moving average about five times along the way. There is no way to know there was a good amount of volatility taking place.
Today we have another example of rotation taking place. The S&P 500 is dead flat while the Nasdaq is chugging along with a gain of 0.7%, and the DJIA and Russell 2000 are taking hits. Money is rotating into a smaller group of big-cap technology stocks such as the FATMAAN names as oil, travel-related, and other 'reopening' stocks take a hit. The leader on the DJIA today is Intel (INTC) , while the laggard is Boeing (BA) .
The question now is whether the action today is the start of another rotational correction like we saw occur in February through May or just a hiccup as the market struggles with the challenges of returning to a 'normal' economy. Many of last week's winners are lagging, but that is not unusual after a good run.
There is nothing yet to indicate that this action is the start of more severe corrective and rotational action, but we need to stay vigilant. We have not seen the FATMAAN names work as a 'safe haven' in a while, but that appears to be what the action is about today. Part of that is just worries about a COVID variant and how the economy may not roar back that fast, but at least the inflationary worries are not an issue.
I'm not doing any major buying today, but I'm watching carefully and expect I'll have a chance to jump on a few things more aggressively as we head into the Fourth of July holiday.