I was pheasant hunting in South Dakota with my boys this last weekend, and we frequently found ourselves on roads with deep mud holes. If it weren’t for our four-wheel drive, we would have been in a mess. Broadening traction is good for mud and even better for the market. Right now, the market advance is expanding across multiple sectors, which is a big positive.
Markets have rebounded broadly since the recent November 21st low. The wide range of market involvement has turned out to be a primary reason. The continued wide range of participation will be key to the run’s continued success.
Over the past week, several sectors have had positive gains. Consumer Discretionary, which is made up of fun purchases like vehicles, restaurants, retail, and entertainment, is up almost 4%. Communication Services, which comprises telecom, media, and entertainment companies, is up by more than 5%. Health Care, which comprises pharmaceuticals, hospitals, and nursing homes, is up almost 3%. All of these are benefiting from investors diverting cash from tech stocks to undervalued assets.
Interestingly, the popular Energy sector is down this week mainly due to the possibility of a Russia-Ukraine peace deal. Though this peace deal would be good for humanity, it would negatively impact the energy sector by flooding the market with additional Russian oil after sanctions are lifted.
We are seeing an uptick in new money entering the market and being invested in sectors beyond the “Magnificent Seven” large-cap technology companies. This is particularly beneficial for value stocks and strong dividend-producing investments, which is a healthy sign for the overall market.
The broadening of market strength, along with continued cash inflows beyond the big tech stocks, is a strong positive. If this trend continues, it would set the market up for a great year-end.
To reach many of our hunting spots, we had to take county roads with signs at the beginning that announced “minimum maintenance.” What that really meant was they weren’t responsible if you didn’t have four-wheel drive. The South Dakota mud is super slimy, but with broad traction, we made it through and had a successful hunt. Just as four wheels pulling is better than two, multiple sectors pulling is better than a handful of big tech stocks.
Have a blessed week!
Richard Baker
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Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
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The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
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