Take everything you thought you knew about the stock market this year and throw it out the window.
After eight months of tech and healthcare dominance, the record-breaking S&P 500 has assumed a fresh new face in September, being instead led higher by energy and telecom shares.
Digging deeper, as the scorching-hot FANG stocks — Facebook, Amazon, Netflix and Google — have headed toward correction territory this month, energy producers have stepped up and largely filled the void, aided by a surge in crude oil prices.
This resilience shown by the S&P 500, which just last week hit a series of new record highs, goes a long way towards disproving the notion that the stock market is trading at the whim of the tech industry. That’s good news for bullish traders, and a comeuppance of sorts for skeptics that warned against a market reckoning in the event of tech weakness.
The rotation occurring underneath the surface of the S&P 500 this month — out of tech and into other more attractively-priced areas — has played out on a smaller scale a few times in the past several months. On multiple occasions, exchange-traded fund data has supported the idea that money pulled from tech has simply been reallocated elsewhere in the stock market, keeping indexes afloat.
“Sector rotation has been a defining characteristic of equity markets throughout the spring and summer,” Fundstrat Global Advisors technical strategist Robert Sluymer wrote in a recent client note.
This dynamic has also been in play outside the confines of sectors. Looking strictly on a return basis, the top 20% of stocks in the S&P 500 in 2017 through August have evolved into the worst-performing quintile in September. On the flip side, the bottom 20% from the first eight months of the year is now the top quintile this month.
And records are being hit all the while — just the latest impressive sign of resilience for the 8 1/2-year bull market that refuses to die.
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