r/stockmarket
Chop and Slow Rotation
Market entering rotation phase from tech leaders to laggards; long energy/healthcare due to geopolitical risk premiums and valuation gaps.
- Sector rotation into lagging value stocks like healthcare offers better risk-reward than extended tech leaders.
- Geopolitical tensions in the Middle East provide a structural floor and potential upside for crude oil prices.
- Healthcare sector demonstrates resilient fundamentals despite recent underperformance relative to the broader market.
- Distribution of leadership in major tech stocks suggests potential near-term downside or stagnation for growth indices.
- Persistent geopolitical instability creates uncertainty that may suppress broader market sentiment and investment.
- REITs face headwinds despite being part of the rotation, acknowledged by the author as a weaker conviction play.
I think we are back in the same phase we were back in November 2025 with distribution of the leaders and rotation to the laggards. I think this will be more obvious in a month.
Friday was a bit overblown. The finance people I follow said it was because there was not a lot of downside protection purchased in the options market.
It looks like tech hardware is leading today, with value/equal weight positive but lagging. Healthcare, utilities, and REITs were the only thing up Friday, and are about the only things down today. There was already some chop last week leading into the Friday’s blowout.
I could see crude futures staying range bound between $85 and $95 in the short term. The Trump administration and the IRGC seem pretty far a part on their goals. I think Crude stays elevated because of this, and the weekend skirmishes we have been having. In the short term, I don’t see the price going higher than $95 because every time this happens Trump, Axios, and various political operatives start jawboning about an eminent deal. I don’t think anyone wants to get caught offsides again. I think only the risk premium from Iran is being considered right now. I don’t think this is actually going to ever go away. As the cat is out of the bag in terms of Iran’s ability to threaten the SoH paired with the USA’s unwillingness to protect freedom of navigation. Even if there is a deal, Iran now knows they can just threaten to close the straight. At some point the supply premium is going to kick in and I think it will move above $95 then.
I am long energy again, and am building health care and REIT positions, as they have largely lagged the boom out of the cease fire. Healthcare in particular has decent fundamentals. I don’t like REITs, and am building a smaller position there.
Feedback?
Everyone is a bear after a drop and a bull after a rally. Sentiment follows price. No one knows where the market is going.
I’ve decided to protect my gains by adding some boring defensive positions: JNJ, PG, PEP, KO, WMT, VT. They will all just keep on their slow upward march and avoid any 20% crashes. Sleeping very well at night.. I’m not selling my AI/semi winners, just not chasing them right now until my portfolio is more balanced.
Rotation humbles every momentum-style approach, because the system is always a beat behind the turn instead of ahead of it. A growth-chasing model rides the leaders until the evidence shifts, then follows the money into the next group, so it gives back a little right at the turn. In my backtesting the year that stung was a narrow market where a tiny handful of names carried the index and the rest got punished, and the model lagged because it was spread across what used to be working. If you're trading the rotation, the real question is whether your system reacts to the change or tries to predict it, because reacting a little late tends to beat predicting wrong over a long record.
That’s a fair point. Getting as much of the terminal gains as possible works better in the long run than guessing wrong. I am probably trying to predict here. My system is not that complicated. More or less, I noticed VOOV beat VOOG coming out of that November slump and was able to rotate into value a bit before the market did. That was over a three week period. This was over a couple days. So over fitting is definitely a risk here. I don’t own VOOV or VOOG they just work better for me as a breadth/concentration proxy than RSP/SPY.
BofA Warns It’s Time to ‘Take Profits’ as Red Flags Multiply
https://finance.yahoo.com/markets/stocks/articles/bofa-warns-time-profits-red-170459030.html
Seems reasonable, except I think you’re overestimating Trump’s ability to jawbone oil prices. I’d expect ramping oil prices over the coming months.
Agreed. I am trying to be more measured in my take. I spend too much time in R/oil and the amount of frustration out of the oil longs is stressing me out. I just didn’t want to recreate that dynamic.
Fair. I don’t have any expertise here, and frankly I’m surprised oil is this low. I have no idea what to attribute it to, but the mental picture of the big money obsessively scrolling Trump’s social media account is kinda amusing, IMHO.
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