Rotation is the lifeblood of bull markets.
This is when money flows from one corner of the stock market to another. It’s a healthy process. Without rotation, bull markets tire. Right now, rotation is underway in a big way. Money is flowing out of “risk on” stocks.
The Magnificent Seven ETF (MAGS), which invests in seven of the world’s most important stocks, has broken down out of a multiweek consolidation pattern. We’ve also seen a violent rotation out of leading growth stocks. Palantir Technologies (PTLR) has plunged 32% in a week. Robinhood (HOOD) has dropped 32% in less than two weeks. And Oklo (OKLO) has plummeted 50% in three weeks. These stocks were among the market’s leaders, recently. It’s a big concern. The other issue is that money isn’t pouring into other risk-on groups. It’s moving to defensive stocks.
The year’s top-performing sectors are healthcare (+6.9%), basic materials (+6.7%), and consumer staples (+6.7%). Healthcare and consumer staples are two of the most defensive sectors. Basic materials aren’t normally viewed as defensive. But they should be this year. The group’s performance is being driven largely by gold stocks.
We haven’t seen a move like this since late 2021… when the last bull market ended. There’s no guarantee that things will play out the same way this time. But more and more major warning signs are appearing.
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