Cyclicals and value stocks have continued to outperform the broader market, riding on the tailwinds of surging commodity prices from base metals, energy and agricultural products. This led the Dow Jones Industrial Average to surge by +0.93% to notch another fresh record high closing level at 34,548.
The rally in cyclical stocks has also spread to the big tech spectrum, where the Nasdaq 100 managed to reverse up from its initial intraday loss of -0.7% to close with a gain of +0.82% to 13,613. A similar gain of +0.82% for the S&P 500 as well, to close at 4,201, only a whisker away from its current all-time high of 4,218 on 29 April, while the small-cap Russell 2000 was unchanged at 2,241.
Based on the performance of the 11 S&P sectors; the leaders were financials (+1.43%), consumer staples (+1.33%) and communication services (+1.10%). Even though the information technology sector rallied by +1.01%, it was only supported by a few large names, such as Apple (+1.28%) and Microsoft (+1.32%), rather than a wider spectrum of growth stocks.
Market breadth in the NASDAQ exchange indicated declining stocks, outpacing advancing stocks by a ratio of around 1.4. Secondly, disruptive innovation and ESG-oriented stocks like solar energy and electric vehicles continued to face downside pressure; the ARK Innovation ETF plummeted by -2.88% to a six-week low, while the Invesco Solar ETF tumbled by -2.32% to a six-month low, followed by Tesla, which ended yesterday's session with a loss of -1.10%, its fourth consecutive day of losses.
Overall, given that the medium-term and major uptrend phases of commodities are likely to persist for now, even the worst performing precious metals within the commodities space have started to show their bullish horns. Gold futures have staged a rally of +8.2% from its recent March low, to close yesterday’s US session at US$1,815 per ounce, a two-month high. Hence, technology and growth stocks that tend to thrive during a deflationary environment may continue to underperform in the medium-term as an inflationary shock starts to trickle down into the real economy.
Chart of the day – the sinking ark
The major uptrend of the Ark Innovation ETF (ARKK) has been damaged, and a potential multi-month corrective down move may be in progress, reinforced by a break below its 200-day moving average.Select here to enlarge image
Source: CMC Markets
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