he New Stock Rotation

Key Takeaways

• The S&P 500 Equal Weighted Index is lagging behind the S&P 500 Index slightly, but the Russell 2000 Small Cap Index is far from making new all-time highs.
• Consumer Staples (XLP), Healthcare (XLV), and Utilities (XLU) are the best performing sectors.
• Investors are switching from high growth/future earnings to companies with current growth and profits.

Stock markets were nothing if not interesting this year.

Opportunities abound from memes to cryptos.

As we close the year, we wanted to see what was happening underneath the covers.

Table of one, please

Turn on the news and you’ll hear about ‘markets’ hitting new all-time highs every day.

Yet, that doesn’t quite tell the whole story.

While the S&P 500 Index is at new all-time highs, the S&P 500 equal-weight Index only just achieved that feat today.

The difference is the S&P 500 Index gives weights to stocks based on market capitalization or total stock value while the equal weight index gives each company exactly 0.2% weighting.

When the S&P 500 Index makes new all-time highs but the equal-weight index does not, it means our rally is being led by a few stocks or sectors.

Does a day later mean much?

Not exactly. But it builds into a bigger picture when we see that the Russell 2000 Small Cap Index (IWM) is well off its all-time highs.

And when we look at those big stocks like Apple (AAPL), Amazon (AMZN), and Facebook (FB), only Apple is near its all-time highs.

Where Is Money Flowing?

They say the best offense is a good defense.

At least that’s what investors are telling us right now.

The best performing sectors in the last few weeks are Consumer Staples (XLP), Healthcare (XLV), and Utilities (XLU).

Staples and Healthcare make sense. But why are investors buying Utilities when those stocks tend to move lower as interest rates rise?

Simply put – they want safety.

Utilities pay consistent dividends and don’t tend to see prices swing around that much.

The Bottom Line: Investors are moving away from high growth stocks with future earnings to ones with better earnings now.

That lends itself to consumer staples. But don’t discount solid performers like Apple with a strong balance sheet and earnings.

And keep an eye out for strong industrials (XLI) that benefit from reopening and tamer inflation in 2022.