What comes next for stocks?

The S&P 500’s performance for the month of November 2023 was one of the best single-month performances for stocks in the last 30 years. Stocks finished the month up 9.5%, a truly incredible return.

The big question is “what’s next for the markets?”

The answer is “rotation”.

Tech led the rally as Big Tech blasted higher throughout November while much of the rest of the market lagged behind. We are now seeing capital flowing into some of the laggards, specifically small caps.

The ratio between the NASDAQ and the Russell 2000 has been in a downtrend for most of 2023 as Tech stocks outperform small caps. We are now seeing a break of this downtrend to the upside as small caps finally catch a bid and Tech consolidates

This rotation is allowing overall breadth to improve as non-tech stocks catch up to Tech leaders. You can see this clearly in the chart below in which breadth (red line) is catching up to the Tech sector (XLK).

After this rotation/catch-up is finished, stocks go to new all-time highs. The Cup and Handle formation in the long-term chart for the S&P 500 is clear.

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