We’re at a probably thrilling juncture within the markets, with greater pattern shifts shaping up that you simply would possibly discover shocking. With all of the discuss sticky inflation, an unsure rate of interest outlook and recession fears amid tightening of financial institution lending, it is simple to throw your arms up in frustration. At this time, I am going that will help you concentrate on the larger image as a substitute, sharing sector, business group and broader market insights that can assist reduce the noise and put together you to benefit from what’s unfolding for the second half of this yr. 

To try this, we will use longer-term month-to-month charts as a information. These charts take away the gyrations seen in day by day charts and can usually sign greater traits which can be longer-lasting. My work is all about capturing sector rotation and, if you have not seen my video on this topic from final yr titled “Understanding Sector Rotation”, use this hyperlink right here. 

Under, we’ll evaluation a month-to-month chart of the Nasdaq, which has been the main Index yr up to now. Whereas many traders will level to the slim management amongst mega-cap shares, you need to check out the record beneath, which has the efficiency of the Nasdaq 100 ranked by year-to-date efficiency, for a fuller image. As you will see, Alphabet (GOOGL) and Amazon (AMZN) didn’t make the highest 10. Actually, Apple (AAPL) didn’t even make the highest 20 and Netflix (NFLX) didn’t make the highest 30. (The total record will be seen right here.)

MONTHLY CHART OF NASDAQ COMPOSITE INDEX

As you may see within the chart above, the Nasdaq is getting into a longer-term bullish section, with its RSI getting into constructive territory and the MACD on the verge of posting a constructive crossover. As well as, this Index has closed above its key 6-month transferring common, which is now performing as help versus resistance. If you happen to study the complete record of year-to-date prime performers, you will see that the record has plenty of Software program and Semiconductor shares on it. Each of those charts are in equally bullish positions (utilizing SOXX and IGV respectively) and, of the 2, Software program shares are poised to contribute essentially the most in outperformance as we head into year-end. It’s because they bought off essentially the most throughout worst of the bear market in 2022 and, relying on progress prospects going ahead, they’re poised to outperform. At the moment, Safety- and Personnel-related Software program shares are faring effectively, as spending in these areas stays vibrant.

As for areas poised to underperform going into the latter a part of this yr, beneath you may see a month-to-month chart of Vitality shares. Whereas the RSI has not entered destructive territory, the MACD has posted a destructive crossover whereas the sector is now beneath its 6-month transferring common. Revenue margins for a lot of Vitality firms are pushed by the worth of oil, and a take a look at the month-to-month chart of Brent Crude will present {that a} downtrend may be very a lot in place.

MONTHLY CHART OF ENERGY SECTOR

These are solely 2 of the 11 sectors available in the market. I’ve highlighted them as a result of they’re on the brink of a significant shift and, additionally, they’re signaling strikes which can be in keeping with a decrease rate of interest setting. Whereas yields on longer-term Treasuries are presently trending larger, there’s anticipation that the Fed won’t solely stop their fee hike marketing campaign, however choose economists are looking out for a fee decreasing at yr finish to 4.75%.

Whereas I anticipate volatility within the markets to stay till important points comparable to inflation and financial progress are revealed, longer-term, I am preserving a watch peeled for a transfer into Know-how, in addition to away from Vitality and different areas that fare poorly in a decrease rate of interest setting, comparable to Financials.

Within the meantime, I am taking benefit of the present outperformance in AI-related Progress shares, and I urge you to use this hyperlink so you may as effectively. My MEM Edge Report will present purchase alerts on Semiconductor and Software program shares already on our Advised Holdings Record, and you will be alerted to new names as they’re added as effectively. Subscribers to this twice-weekly report had been alerted to Nvidia (NVDA) in January and the inventory has gained over 80% since being added.

Benefit from the lengthy weekend!

Warmly,

Mary Ellen McGonagle, MEM Funding Analysis