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There’s no doubt that Big Tech is driving the bull market, but it has company.
While the major indexes are narrowly in the green in October, they have been boosted by third-quarter earnings from Bank of America (BAC) and Goldman Sachs (GS), which reported big gains in investment fees banking.
More importantly, the so-called “fins” along with three others – the technology sector, the consumer discretionary sector and the industrial sector – have rallied to outperform the S&P 500 since the Japanese yen-induced panic of August 5. All four sectors are up about 15%, with a slight lead for technology. (The low is technically important because it marks the bottom of the biggest decline of the year – a fairly normal 8.5%).
It may seem familiar – and perhaps a little unnerving – that ‘technology is leading the way again’ after the concentration wringing its hands over the ‘Magnificent Seven’. But unlike other periods in this bull market – which is now two years old – technology has some company, thanks to money flowing or rotating into other sectors.
It is a process as old as public markets. As the godfather of technical analysis, Ralph Acampora, CMT, famously quipped, “Sector rotation is the lifeblood of a bull market.”
Ralph’s cousin, Jay Woods, executive governor of the NYSE and chief strategist at Freedom Capital Markets, recently joined Stocks In Translation to break down the concept.
“Money doesn’t leave the market, it just moves from one sector to the next,” Woods said, pointing to the strength of software stocks. He specifically highlighted cybersecurity plays like CrowdStrike (CRWD) and Cisco (CSCO) – both damaged stocks at once and are now leading.
Woods reflects on Cisco’s journey back and forth to the height of the dot-com bubble.
“I hate that I like Cisco now,” Woods said. “I liked it in ’99, and it’s right where it traded in 1999. That’s amazing.”
In fact, today’s leadership in the technology sector is in stark contrast to earlier this year, when Mag Seven shares dominated. Although perennial leader Nvidia (NVDA) is up 30% since the August 5 low, IBM (IBM) is hot on their heels and rising from the old tech ashes to new all-time highs.
Moreover, more than twenty stocks in the S&P 500 have outperformed Nvidia since the yen bottomed, led by electricity company Vistra Corp. (VST) and United Airlines (UAL) – up 85% and 70% respectively.
Many of these stocks are simply laggards that got beaten up and left behind during the 2022 bear market. But even among the overloaded, there are still potential winners to be found.
‘Put me together a five-year weekly chart for utilities. Talk about a nice rounded base and then a breakout,” Woods said, adding, “[These are] no longer your grandparents’ utilities.”
On the Yahoo Finance podcast Shares in translationYahoo Finance Editor Jared Blikre cuts through the market chaos, noisy numbers and exaggerations to bring you essential conversations and insights from across the investment landscape, giving you the critical context needed to make the right decisions for your portfolio. Find more episodes on our videohub or check your favorite streaming service.
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