From the desk of Steve Strazza @Sstrazza and Ian Culley @IanCulley.
We held our March Monthly Strategy Session last night which Premium Members can access and rewatch here.
In this post, we’ll provide a summary of the call by highlighting three of the most important charts and topics we covered along with commentary on each.
Let’s dive into it.
1. The Recent Rotation Is Here To Stay
In a world where there are very few guarantees, one thing that’s remained a constant throughout history is that markets are always changing.
Markets are dynamic. It’s an inescapable reality.
Speaking of which, we’ve seen mounting evidence of major changes taking place beneath the surface since late last year. Many of these relationships have accelerated and become much more noticeable of late.
This bubble chart illustrates the story well.
The Large-Cap Growth and Technology names that held up best during the Covid-Crash have taken a back seat since the Growth/Value ratio peaked in early September.
For the first time in a very long time, we want to be overweight Value, SMIDs, and International stocks vs their alternatives… This represents a major shift from our strategy of leaning on leadership from US/ Large-cap/ Growth as we have for the better part of the past decade.
As surprising as these developments may be, this rotation is all very healthy market behavior and we should embrace it.
As Ralph Acampora says, “rotation is the lifeblood of any bull market.”
2. Financials Are Where The Value Is
One of the most important indexes in the world just reclaimed its all-time highs from 14-years ago. This major base breakout from Financials $XLF speaks volumes in regards to the theme of rotation and broadening participation.
It also makes plenty of sense considering the reflationary, return to growth, and rising rate environment we’re in.
With Financials finally back above their pre-financial crisis highs, the environment is ripe as ever for a sustained rotation into value stocks.
As you can see, Financials also reclaimed their key 2018 highs on the recent breakout, which is when risk assets peaked around the globe.
It’s important to remember that we don’t really have bull markets without Financials participating. Therefore, seeing this crucial area of the market finally throw their hat in the ring is an incredibly bullish development.
3. Stocks Over Bonds And Global Risk Appetite
The Stocks vs Bonds ratio has been an excellent leading indicator for us over the years.
See how it warned us of waning risk appetite when it peaked back in 2018? And now notice how different it looks today as the ratio recently reclaimed this level and is back at all-time highs.
The bottom line is that money continues to flow out of bonds and into stocks.
This is yet another bullish development and supports the risk-on action we’re seeing from markets all around the globe.
Those are some of the main takeaways from this month’s strategy session.
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Thanks for reading and please let us know if you have any questions!