Market Rotations Over the Last 6 Months

Market Rotations Over the Last 6 Months

Posted on July 08, 2021
I hope everyone had a great holiday weekend and was able to spend some time relaxing over the 4th of July.

So far, 2021 has been a bull market, and the polar opposite of 2020.  We have seen low and decreasing volatility. We have also seen a few rotations in market leadership.  If you often read our posts, you will recall that we have been discussing the sector rotations that have occurred so far this year.  To start the calendar year 2021, technology had dominated the markets.  In fact, no other sector benefited from the volatility caused by the pandemic more than technology-related stocks.  Below is a chart of sector leadership starting on January 1st, 2021.
 
Sector Risk-Adjusted Rank
Discretionary 1
Industrials 2
Technology 3
Financials 4
Basic Materials 5
Communications 6
Staples 7
Health Care 8
Energy 9
Utilities 10
Real Estate 11
Source: Canterbury Investment Management

From the start of 2021 through the end of May, the technology sector lagged.  We saw a rotation in market leadership that favored value-related stocks and sectors such as financials, real estate (which had been in last place to begin the year), and basic materials.  In fact, while technology and discretionary (led by Tesla and Amazon) had held the top spots to start the year, they now fell towards the bottom of the pack.
 
Sector Risk-Adjusted Rank
Financials 1
Basic Materials 2
Real Estate 3
Industrials 4
Energy 5
Health Care 6
Communications 7
Staples 8
Discretionary 9
Technology 10
Utilities 11
Source: Canterbury Investment Management

Over the last month, we have seen a rotation back to the technology-led sectors.  Communications, Technology, and Discretionary are rising to positions of leadership.  Basic materials, which was the second highest rated sector at the end of May, is now second-to-last.  Real Estate remains strong on a risk-adjusted basis.
 
Sector Risk-Adjusted Rank
Real Estate 1
Communications 2
Technology 3
Health Care 4
Discretionary 5
Energy 6
Industrials 7
Financials 8
Staples 9
Basic Materials 10
Utilities 11
Source: Canterbury Investment Management.

Technology Leadership
In mid-June, the Nasdaq’s (which represents technology-related stocks) relative strength verses the rest of the market turned positive.  Since that point, technology-related stocks have outperformed the rest of the market.  Tech has been the clear leader over the last few weeks and has carried the markets higher, due to its large weighting within the broad markets.

Bottom Line
There have a been a few different market rotations that have occurred in the first 6 months of 2021.  We have seen technology heavy sectors go from the best to the bottom and back to the top of leadership.  From an overbought/oversold perspective, the market is 82% overbought, meaning for at least the short-term it is overextended.  Historically, the first few days following a market holiday are bullish but can get a bit choppy in the days that follow.

Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

 
Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.


Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.