Last week I wrote about the staggering gap in the returns for the growth segment of the market and the value segment. The value segment has picked up a little steam in the last few weeks and from July 9 through July 17 the SPDR S&P 500 Value ETF (SPYV) gained 5.17% while the SPDR S&P 500 Growth ETF (SPYG) gained a meager 0.34%.
The reversal of fortunes took a break on Monday, July 20, when the growth segment jumped 1.92% and the SPYV dropped 0.76%, but the roles reversed again on Tuesday with value outperforming growth again.
It was the action on Monday that got my attention as three of the four main sectors gained ground on the day and that was after three of the four opened in negative territory. The Nasdaq jumped a whopping 2.51% on the day and the S&P tacked on 0.84%. The Russell fell 0.36% on Monday.
The index performances don’t seem all that unusual, but when you consider the performances of the different sectors, it seems considerably odder. Only three of the 10 main sectors moved higher on Monday—tech, consumer discretionary, and communication services.
The tech sector jumped 2.52% to lead the way. The consumer discretionary sector gained 1.60% and the communication services sector moved up 1.20%.
On the downside, four sectors dropped over 1.0%. The energy sector took the worst hit with a loss of 1.66%. The utilities sector dropped 1.31%, the industrial sector fell 1.22%, and the consumer staples sector declined 1.04%.
Tuesday saw almost the exact opposite results. Late in the day, tech was down almost 1.0%, the communication services sector was down 0.36%, and consumer discretionary was only up 0.17%. On the flip side, the energy sector was up 5.6%, industrials were up 1.3%, and staples were up 0.90%.
A great deal of the gains on Tuesday can be attributed to the European Union coming to an agreement on a stimulus package for Europe. Futures were pointing higher before the open and once the market opened the S&P gapped higher. Stocks were selling off late in the session though.
At this time the House and the Senate are debating a second stimulus package for the United States, but there are some hurdles any package will face. President Trump has made it known that he wants a payroll tax holiday provision in the bill, but he also wants to cut virus testing funds. Those provisions to the bill will likely get push back from both sides of aisle.
The discussions of a second stimulus package have been going on for a while and the continuation of the rally in stocks can be partially, if not entirely, attributed to a second round of stimulus. Congress is set to go on recess in August, so that gives them a little over a week to get a bill passed.
Even if there is a second round of stimulus, there are some odd behaviors going on in the market right now. Initially, I thought we were just seeing a sector rotation with investors moving away from some of the more growth-oriented sectors and into the value-oriented sectors, but it seems to be more than just a sector rotation.
I don’t know what it is that is happening right now, but after doing this for over 25 years, it makes me nervous when weird things start happening and I can’t figure out how to explain them. I have been through a couple of bear markets and I have been through raging bull markets. I have also been through consolidation phases where it seems like nothing moves more than a few percentage points.
I recommend that investors remain cautious and keep your options open. Don’t get locked into one investment strategy and don’t forget the market can move down just as easily as it can move up.