{"id":209081,"date":"2024-07-11T11:15:00","date_gmt":"2024-07-11T15:15:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=209081"},"modified":"2024-07-25T15:52:35","modified_gmt":"2024-07-25T19:52:35","slug":"has-healthy-rotation-become-potentially-toxic","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/has-healthy-rotation-become-potentially-toxic\/","title":{"rendered":"Has Healthy Rotation Become Potentially Toxic?"},"content":{"rendered":"\n<p>If you look at the reactions of the S&amp;P 500 (<span class=\"stock-ticker\" data-stock-ticker=\"SPX\">SPX<\/span>) and Nasdaq 100 (<span class=\"stock-ticker\" data-stock-ticker=\"NDX\">NDX<\/span>), you\u2019d think that today\u2019s benign CPI report was bad for stocks.&nbsp; In reality, today\u2019s report is helping the vast majority of shares trade higher.&nbsp; Yet because the \u201cwrong stocks\u201d are heading south, so are the market capitalization-weighted indices that they dominate.&nbsp; We are getting a dose of the \u201chealthy rotation\u201d that many have hoped for, yet it is impacting key indices nonetheless.<\/p>\n\n\n\n<p>As I type this, around midday, SPX is -0.9% and NDX is -2%.&nbsp; Ouch. &nbsp;And this is despite Treasury yields plunging by 10-12 basis points across the curve.&nbsp; &nbsp;But the Russell 2000 (<span class=\"stock-ticker\" data-stock-ticker=\"RTY\">RTY<\/span>) is +3%, and advancing stocks are outpacing decliners on the NYSE by a roughly 6:1 ratio and by about 3:1 on Nasdaq.&nbsp;<\/p>\n\n\n\n<p>Care to guess why the key indices are underperforming?&nbsp;&nbsp; I\u2019ll bet that many of you know the answer already\u2026<\/p>\n\n\n\n<p>All of the \u201cGreat Eight\u201d stocks \u2013 the Magnificent Seven plus Broadcom (<span class=\"stock-ticker\" data-stock-ticker=\"AVGO\">AVGO<\/span>) are getting shredded today.&nbsp; Tesla (<span class=\"stock-ticker\" data-stock-ticker=\"TSLA\">TSLA<\/span>) was the lone stock bucking the trend until we learned that their highly anticipated robotaxi announcement will be delayed from August to October.&nbsp; Now it is leading the declines.&nbsp; Other major tech stocks find themselves under pressure, with the Philadelphia Semiconductor Index (<span class=\"stock-ticker\" data-stock-ticker=\"SOX\">SOX<\/span>) down more than -3% as we see investors pivot from growth to value.&nbsp; The Vanguard Russell 1000 Growth ETF (<span class=\"stock-ticker\" data-stock-ticker=\"VONG\">VONG<\/span>) is down nearly -2% while its Value counterpart (<span class=\"stock-ticker\" data-stock-ticker=\"VONV\">VONV<\/span>) is up nearly +1%.&nbsp;<\/p>\n\n\n\n<p>Today\u2019s moves are hardly cause for alarm.&nbsp; Heck, SPX hasn\u2019t even given back all of yesterday&#8217;s gains (though NDX is far worse).&nbsp; But this type of market activity points out in vivid detail why the top-heavy concentration of cap-weighted indices is a source of potential instability for a tech-driven market.&nbsp;<\/p>\n\n\n\n<p>A prolonged sell-off in some of the biggest names could pressure the main indices that investors watch, even if the majority of stocks remain initially unscathed.&nbsp; That in turn could cause investors to lighten their exposure to key index-based investments, such as ETFs like SPY and QQQ.&nbsp; If that occurs, then the selling could swamp the index as a whole, hurting the now laggard value stocks nonetheless.&nbsp; They would outperform on a relative basis in that scenario but could still get swamped by selling anyway.&nbsp;&nbsp; Remember, when one buys a \u201cdiversified\u201d SPX-linked index fund or ETF, about 35% of it is concentrated in the eight stocks referenced above.&nbsp; That is far less diversification than many investors realize.<\/p>\n\n\n\n<p>This concern is of greater importance as we enter earnings season.\u00a0 Delta Airlines (<span class=\"stock-ticker\" data-stock-ticker=\"DAL\">DAL<\/span>) gave it an auspicious start, but the season \u201cofficially\u201d kicks off tomorrow when JPMorgan (<span class=\"stock-ticker\" data-stock-ticker=\"JPM\">JPM<\/span>), Wells Fargo (<span class=\"stock-ticker\" data-stock-ticker=\"WFC\">WFC<\/span>), and Citibank (C) report.\u00a0 \u00a0The megacaps don\u2019t begin reporting for nearly two weeks, but it doesn\u2019t mean that we shouldn\u2019t consider what could happen if one or more severely underperforms market expectations.\u00a0 It is not unreasonable to think that those expectations have been pumped sky-high during the recent rally.\u00a0 This fear was brought home when Micron Technologies (<span class=\"stock-ticker\" data-stock-ticker=\"MU\">MU<\/span>) reported otherwise excellent numbers but sank because its raised expectations fell short of the market\u2019s most aggressive hopes.<\/p>\n\n\n\n<p>One day does not a trend make.&nbsp; But as someone who has been advocating and hoping for a broader market rally and a rotation into value from growth, today\u2019s activity makes me wonder if I should be more careful about what I wish for.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-3-day-chart-spx-red-green-1-minute-candles-ndx-blue-line\"><strong><em>3-Day Chart, SPX (red\/green 1-minute candles), NDX (blue line)<\/em><\/strong><\/h3>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1100\" height=\"808\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2024\/07\/Picture1-7-1100x808.png\" alt=\"3-Day Chart, SPX (red\/green 1-minute candles), NDX (blue line)\" class=\"wp-image-209082 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/07\/Picture1-7-1100x808.png 1100w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/07\/Picture1-7-700x514.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/07\/Picture1-7-300x220.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/07\/Picture1-7-768x564.png 768w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/07\/Picture1-7-1536x1129.png 1536w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/07\/Picture1-7.png 1758w\" data-sizes=\"(max-width: 1100px) 100vw, 1100px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/808;\" \/><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>If you look at the reactions of the S&amp;P 500 (SPX) and Nasdaq 100 (NDX), you\u2019d think that today\u2019s benign CPI report was bad for stocks. In reality, today\u2019s report is helping the vast majority of shares trade higher, but because the &#8220;wrong stocks&#8221; are heading south, so are the market capitalization-weighted indices that they dominate.<\/p>\n","protected":false},"author":4,"featured_media":209083,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":true,"footnotes":""},"categories":[6,8,9,22,26,3],"tags":[9362,1840,14423,6988,5531,3922,10995,4166,17423,17368],"contributors-categories":[13576],"class_list":{"0":"post-209081","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-north-america","8":"category-region","9":"category-securities","10":"category-stocks","11":"category-text-articles","12":"category-traders-insight","13":"tag-economic-outlook","14":"tag-equity-markets","15":"tag-financial-analysis","16":"tag-financial-markets","17":"tag-investment-strategy","18":"tag-market-rotation","19":"tag-market-volatility","20":"tag-portfolio-management","21":"tag-sector-analysis","22":"tag-stock-market-trends","23":"contributors-categories-interactive-brokers"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.5) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Has Healthy Rotation Become Potentially Toxic?<\/title>\n<meta name=\"description\" content=\"If you look at the reactions of the S&amp;P 500 (SPX) and Nasdaq 100 (NDX), you\u2019d think that today\u2019s benign CPI report was bad for stocks. In reality,...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/posts\/209081\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Has Healthy Rotation Become Potentially Toxic? | IBKR Campus US\" \/>\n<meta property=\"og:description\" content=\"If you look at the reactions of the S&amp;P 500 (SPX) and Nasdaq 100 (NDX), you\u2019d think that today\u2019s benign CPI report was bad for stocks. In reality, today\u2019s report is helping the vast majority of shares trade higher, but because the &quot;wrong stocks&quot; are heading south, so are the market capitalization-weighted indices that they dominate.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/has-healthy-rotation-become-potentially-toxic\/\" \/>\n<meta property=\"og:site_name\" content=\"IBKR Campus US\" \/>\n<meta property=\"article:published_time\" content=\"2024-07-11T15:15:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-07-25T19:52:35+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/07\/rotation-featured-img.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1000\" \/>\n\t<meta property=\"og:image:height\" content=\"563\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Steve Sosnick\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Steve Sosnick\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\n\t    \"@context\": \"https:\\\/\\\/schema.org\",\n\t    \"@graph\": [\n\t        {\n\t            \"@type\": \"NewsArticle\",\n\t            \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/traders-insight\\\/securities\\\/stocks\\\/has-healthy-rotation-become-potentially-toxic\\\/#article\",\n\t            \"isPartOf\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/traders-insight\\\/securities\\\/stocks\\\/has-healthy-rotation-become-potentially-toxic\\\/\"\n\t            },\n\t            \"author\": {\n\t                \"name\": \"Steve Sosnick\",\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#\\\/schema\\\/person\\\/31988d9596575a63ddc53e92049a2549\"\n\t            },\n\t            \"headline\": \"Has Healthy Rotation Become Potentially Toxic?\",\n\t            \"datePublished\": \"2024-07-11T15:15:00+00:00\",\n\t            \"dateModified\": \"2024-07-25T19:52:35+00:00\",\n\t            \"mainEntityOfPage\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/traders-insight\\\/securities\\\/stocks\\\/has-healthy-rotation-become-potentially-toxic\\\/\"\n\t            },\n\t            \"wordCount\": 610,\n\t            \"commentCount\": 7,\n\t            \"publisher\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#organization\"\n\t            },\n\t            \"image\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/traders-insight\\\/securities\\\/stocks\\\/has-healthy-rotation-become-potentially-toxic\\\/#primaryimage\"\n\t            },\n\t            \"thumbnailUrl\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2024\\\/07\\\/rotation-featured-img.jpg\",\n\t            \"keywords\": [\n\t                \"economic outlook\",\n\t                \"equity markets\",\n\t                \"financial analysis\",\n\t                \"Financial Markets\",\n\t                \"investment strategy\",\n\t                \"market rotation\",\n\t                \"market volatility\",\n\t                \"portfolio management\",\n\t                \"sector analysis\",\n\t                \"Stock Market Trends\"\n\t            ],\n\t            \"articleSection\": [\n\t                \"North America\",\n\t                \"Region\",\n\t                \"Securities\",\n\t                \"Stocks\",\n\t                \"Text Articles\",\n\t                \"Traders' Insight\"\n\t            ],\n\t            \"inLanguage\": \"en-US\",\n\t            \"potentialAction\": [\n\t                {\n\t                    \"@type\": \"CommentAction\",\n\t                    \"name\": \"Comment\",\n\t                    \"target\": [\n\t                        \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/traders-insight\\\/securities\\\/stocks\\\/has-healthy-rotation-become-potentially-toxic\\\/#respond\"\n\t                    ]\n\t                }\n\t            ]\n\t        },\n\t        {\n\t            \"@type\": \"WebPage\",\n\t            \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/traders-insight\\\/securities\\\/stocks\\\/has-healthy-rotation-become-potentially-toxic\\\/\",\n\t            \"url\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/traders-insight\\\/securities\\\/stocks\\\/has-healthy-rotation-become-potentially-toxic\\\/\",\n\t            \"name\": \"Has Healthy Rotation Become Potentially Toxic? 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