Finding Gems Amid The Market Wreckage

Entrepreneur, Idea, Competence, Vision, Target

The S&P 500 (SPY) selloff intensified this past week. So far, it’s looking and behaving like a culmination of the market’s rotation out of growth stocks. We’ve seen big declines in certain parts of the market from the big winners of 2020 that peaked in mid-February. Since their recent highs – the cannabis ETF (MJ) is down 44%; the cloud computing ETF (WCLD) is down 27%; and the semiconductor ETF (SMH) is down 14%.

In today’s commentary, I cover some of the opportunities that have been created, ways to take advantage, and what I’m monitoring when it comes to the broad weakness in the market. 

But, I want to reiterate 3 things:

  1. The macro backdrop remains favorable due to earnings growth and low interest rates.
  2. We are likely in a high-growth, high-inflation world for the next 3 to 5 quarters, which we’ve only experienced for brief spurts of time in the past few decades.
  3. Another remarkable aspect of this period is that nearly every segment of the economy is in expansion mode – industrials, housing, consumer spending, government spending, monetary policy, etc. Parts of the economy that are offline should come online in the next few months, creating another catalyst.

 So, the last few days have been rough for the stock market.

The weakness in frothy and growth stocks has infected the broader market – even the industrial and commodity stocks which were breaking out to new highs late last week and early this week.

In our first webinar, I discussed some of the risks facing the market and mentioned that tax selling could pose a headwind at some point. This does seem to be materializing to some degree especially as some of the weakest stocks over the past few weeks have been the biggest winners of 2020 that were dominated by retail traders like the cryptocurrency mining stocks or the cannabis sector.

This will not be a headwind next week. It could lead to things getting even messier later this week but more likely, this will be front-run.

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Disclosure: We’ve covered these factors with more depth in previous  more

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