Markets Cool Their Jets
What is it?
After a larger drop from February into March, the markets rebounded in the following three weeks. Last week was pretty calm. Volatility remained low ahead of earnings starting this week. Markets seemed to cool their jets so to speak as the Vanguard World Stock INdex ETF (VT) closed the week slightly lower as shown in the red oval below.
Last week good news was actually bad news for the markets. Non-Farm Payroll (NFP) data was positive giving the Fed more of a reason to continue raising interest rates. Investors think it is more likely that the Fed will raise rates now than they did to start last week.
Why does it matter?
With earnings starting today, we expect volatility to increase from the currently low levels in the next few weeks. The stocks that are signaling overbought at the moment may have a hard time pushing higher. Because of that we took profits on some positions and are keeping a low amount of exposure to risk in the markets.
Large Stocks Lead the Way
What is it?
While the Meg Cap stocks have been up, most of the S&P has not appreciated much if at all in recent weeks.
“Alongside the financial and REIT sectors, small cap stocks are falling victim to the banking crisis. The logic is that many small companies tend to rely heavily on debt financing. Large tech companies, on the other hand, are flourishing in the current environment. Many of these companies are not burdened with debt, nor will they have similar problems borrowing. “*
Why does it matter?
That tells us a lot about what investors are looking for. Safety in equities as bond yields move lower. We see the top names as overbought at the moment while smaller cap stocks may be undervalued. This trend may subside when the investment mood is more optimistic overall. That could lead to money flowing into growth stocks as opposed to the current leaders in market cap.
Other articles we found interesting this week:
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Our last 401(k) portfolio reallocation: 5/19/2022.
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The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
*Michael Lebowitz and Lance Roberts. “Small Cap Stocks Lose Favor To Techs”. 3/28/2023. RIA Advice. https://realinvestmentadvice.com/small-cap-stocks-lose-favor-to-techs/
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