Sector Rotation

What is it? 

Stocks had a rough week last week. The more volatile sectors were down the most going into Friday.

“Stocks closed lower Wednesday following recent Fed officials’ speeches signaling that more interest rate hikes are likely to continue and that rates could remain elevated for a longer period. U.S. stocks edge lower Thursday, with a post-earnings pop from Disney (DIS), reversing gains from earlier in the trading session. Federal Reserve Governor Christopher Waller, who said that an effort to reach the central bank’s 2% inflation target ‘might be a long fight.’ Meanwhile, New York Fed President John Williams hinted that more hikes may be needed.’”*

Markets took this into account and edged lower as the positive investor sentiment faded away.

Why does it matter?

“Wall Street’s main indexes registered large losses on Wednesday led by the Communication Services sector which fell more than 4%.”**

We added some exposure to more stable sectors as they have been on the rise some of this year. They also have not experienced the same downward moves on a percentage basis as the more volatile sectors. 

Google Fails to Match the Hype

What is it? 

Google may have announced its AI (Artificial Intelligence) technology prematurely as the hype is quickly growing around AI. They didn’t have much that was inherently new, and the markets took that as a sign that they may be falling behind in some aspects. 

“Google (GOOG, GOOGL) on Wednesday unveiled a round of new AI-focused features for its Search, Maps, and Lens apps — and investors and experts weren’t terribly impressed. Wednesday’s event was held in Google’s Paris office just a day after Microsoft (MSFT) revealed its new version of Bing, which it’s integrating with OpenAI’s much-discussed ChatGPT. Google’s dominance in search was once seemingly untouchable, and the numbers certainly reflect as much – Google has more than 80% market share, while Bing comes in at roughly 9%.”***

Why does it matter?

“Shares of Google’s parent company Alphabet fell nearly 8% on Wednesday in the hours that followed Google’s presentation, shaving roughly $100 billion from the company’s market cap. On Thursday, shares fell another 5%.”***

Investors looking for long-term returns noticed weakness from the historically strong Google. If using AI is more common, it may come at a higher cost to google to get people to their desired search results. While it is still in the works, there may be an advantage to this newer technology that seems to be accelerating quickly. 

The technology sector had a good run to start the year. However, we will need to wait and see if Google and others can move higher from here or continue the downward trend from 2022. 

Other articles we found interesting this week:

Cathie Wood Doubles Down on Stance That Forthcoming Tesla Product Will 8X Its Stock Price

Bitcoin’s 2023 Bounce Is Fizzling as SEC Turns Up Heat on Crypto

As investors cheer ‘disinflation,’ Jamie Dimon says not so fast

Current 401(k) portfolio

Our last 401(k) portfolio reallocation: 5/19/2022. 

Want more information?

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.

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Sources:

*Dani Romero. “Stocks give up gains, close lower amid more earnings”. 2/9/2023. https://finance.yahoo.com/news/stock-market-news-live-updates-february-9-2023-123928495.html

**Eren Sengezer. “US Dollar struggles to benefit from hawkish Fed commentary”. 2/9/2023. https://www.fxstreet.com/news/forex-today-us-dollar-struggles-to-benefit-from-hawkish-fed-commentary-202302090730

***Alexandra Garfinkle. “Why Google’s AI rollout cost shareholders more than $100 billion”. 2/9/2023. https://finance.yahoo.com/news/why-googles-ai-rollout-cost-shareholders-more-than-100-billion-174703170.html

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