What is most interesting about the financial markets over the past year is not only the resiliency and sustainability of the rallies but the numerous rotations taking place in the stock market. These rotations have come at an increasingly fast pace backed by strong money flow and strong inflows. This may be one of the reasons for the continuation of the 10-year old bull rally. So, what are they rotating into and rotating out of?
Growth is back in vogue (i.e., iShares S&P Growth – IVW). Momentum is hot once more (i.e., iShares Momentum Factor ETF – MTUM and Invesco DWA Momentum ETF – PDP). Cyclicals are gaining strength (i.e., Consumer Discretionary Select Sector SPDR Fund – XLY), High betas are in play (i.e., Invesco S&P 500 High Beta ETF – SPHB). Value is out of favor (i.e., iShares S&P Value – IVE). Defensives and low volatility plays seems to be boring (i.e., Consumer Staples Select Sector SPDR Fund – XLP and Invesco S&P 500 Low Volatility ETF – SPLV, and iShares Edge MSCI Min Vol USA ETF – USMV). But are these views exactly true?
Enclosed below is the Relative Rotation Graph (RRG) of the above ETFs depicting the relative strength and relative price momentum over the past 8-weeks. A very brief analysis of this chart shows the current market environment tends to favor the momentum, high beta, growth, and pro-cyclical areas.
However, the attached short-term daily charts of the above ETFs accompanied by the respective relative strength versus SPX, MACD price momentum and SCTR trends are more mixed as many are recording all-time price highs. Upon further review we believe these rotations are very fluid and can change directions very quickly. We recommend investors and traders monitor these changes closely into 2020.