2024’s Worst Sectors Now Stealing the Show By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - What’s working now is the opposite of the last two years…
- The S&P 500 and Dow could be next to show a “bearseye”…
- An upcoming seasonality opportunity with a perfect track record…
- Gold sets a new high amid tariff chaos…
- What happens after a drop like this…
- Are you ready for Q-Day?
Where should your money be right now? It’s a fair question with a simple, but difficult-to-accept answer. Your money should be out of growth and tech and into value. That sounds simple. Your money should be out of everything that’s worked the best this entire bull market and into an area that’s not worked as well. That’s the part that’s difficult to accept, and even more difficult to implement. This isn’t just theory. In fact, it’s not theory at all. The price action shows us everything we need to see. Here’s a chart of how growth sectors (XLY, XLK) are faring compared to value sectors (XLP), relative to the S&P 500: 
Specifically starting in the back half of February, value-heavy staples have run away with all the gains. They’re outperforming SPY and are still up for the year. Think about those other two lines, though. Tech/SPY is down for the year while SPY is down for the year. That means tech is underperforming what’s already a major loser. So are discretionary stocks. But let’s drill down to what’s really working. Here are all the sectors and their current year-to-date returns: 
Healthcare (XLV), one of the worst-performing sectors over the last year, is stealing the show in 2025. So is Real Estate (XLRE), which has likely benefited from falling mortgage rates. These are the areas investors are fleeing to from growth – not just staples. | Recommended Link | | | | Don’t panic over the recent market volatility… According to legendary investor Louis Navellier, the first 100 days of Trump’s administration could lay the groundwork for the best four-year period for stocks in U.S. history. Click here to see which “Trump stocks” he’s recommending. |  | | But if there’s one place you really don’t want to be, it’s small caps… At least right now. In case you missed it, TradeSmith CEO Keith Kaplan wrote you on Wednesday with the first of hopefully no more major warnings about the state of U.S. stocks. We got a rare “bearseye” signal on the S&P 600 small-cap sector, which strikes whenever the number of Red Zone stocks crests 40%, and the index itself is also in the Red Zone. Here’s Keith (with some updated charts)… On the far right of the chart below, you can see that yesterday (March 11), that bearseye signal triggered on the S&P 600 small-cap index. The last time that happened was just before the 2022 bear market. Before that, the pandemic. And before that, we were actually dealing with tariff uncertainty again in 2018… right before the worst December since the Great Financial Crisis: 
We aren’t seeing bearseye signals in the other major indices yet. But we should be aware that all the other main U.S. benchmarks have entered into the Yellow Zone – what we could consider a caution signal, or a sign of a significant short-term correction: 
We want to keep a close eye on the rest. The S&P MidCap 400 index (MID) has 46% of stocks in the Red Zone right now. And the S&P 500 (SPX) is just under 40%. It’s not clear when we’ll see relief for the small-cap sector. Interest rates still weigh down these small firms, making them a hard choice against the cash-rich megacaps. And with the recent drop, the sector has been dead money for close to five years. That’s a tough pill to swallow in a world that just went through several years of abnormally high inflation. Finally, it’s worth noting that that both the S&P 500 and the Dow 30 are currently at risk of flashing bearseye signals as well. Both indices have 40% or more of their components in the Red Zone. Another bad couple weeks of selling could tip them into bear mode. The Nasdaq 100 is still clear of the signal, for now. But we’re watching them all like a hawk and will be ready to share the signal with you if and when they’re confirmed. Bearseye signals are no joke. They happen rarely, and stocks are most often negative by an average or -12.5% between them and the next bullseye signal, which is when conditions reverse. Small caps are an unusual situation – they have a ton of headwinds to deal with. So we shouldn’t be too surprised they’re seeing a bearseye. But the large-cap benchmarks? That would be a true risk-off moment we haven’t seen since 2021. Where to hide? Seasonality says natural gas… I was pleasantly surprised to see this on my TradeSmith Finance dashboard on Thursday morning: 
Natural gas exploration and pipeline company EQT Corp. (EQT) has a strong seasonality period coming up. (Disclosure, I own shares of EQT.) From March 23 to May 2, EQT has gone up an average of 19.08% and has been positive through this period every single one of the last 15 years. Even if you take out the anomaly of 2020 – when the stock went up triple-digits during that period – the average return is still 10%. This seems like a trade you can hang your hat on, especially as President Donald Trump charges forward with America First energy policies – namely by enacting tariffs on Canadian energy. In the case of EQT, specifically, it’s a major player in the Northeast, running gas out of the Appalachian basin. It’s a domestic producer, and should be set to benefit from a more difficult energy import situation with Canada. Gold is up nicely too… The shiny yellow metal is up 13.5% in 2025 and just notched a new high just under $3,000 per ounce, offering a great place to hide out in tariff chaos. But you know what’s just as interesting? Gold miners are still below their all-time highs set all the way back in 2011… despite gold prices nearly doubling since then. 
Gold stocks also happen to be very cheap, trading at just 10x earnings. And they’re doing this in an environment where their primary product is surging into new all-time highs. The gap between gold and gold stocks is, just as it is with small caps, a product of a poor lending environment. The gold mining business is notoriously capital intensive, with miners needing to borrow money to fund exploration and other costs to get the gold out of the ground before processing and selling it. Even with margin expansion, the cost of gold mining remains high. Still, speculators should not ignore the trend in gold stocks right now. There’s strong potential for a catch-up trade in the near future. This is a steep drop… I’m sure you don’t need me to tell you this, but the price action of the last few weeks has been downright dastardly. The S&P 500 is down -9% in 15 trading days. That’s rough. It’s also relatively rare, happening just 87 times since SPY launched. I wanted to see how SPY fared on multiple timeframes after drops like this. Here are the results… - After 21 trading days, SPY is higher just 62.1% of the time for an average gain of 1.7%. So, over the short term, we should expect some relief… but nothing that will take us back to new highs.
- After three months, however, SPY was higher 76.2% of the time for an average gain of 3.9%.
- And after six months, SPY was higher 77.8% of the time for an average gain of 8.3%.
So there’s good news and bad news. The good news is that, on average, stocks recover in the months following such big short-term declines. The bad news is, history shows you have to wait a long time for those recoveries. Can Nvidia’s “Q Day” help make stocks great again? The market may be turbulent these days, and the emotions behind it even more so. But, over at InvestorPlace, senior analyst Louis Navellier remains confident that big investing opportunities are coming for one specific reason: Innovation. Just this Wednesday, a company called D-Wave said it has a quantum computer that can run a “simulation in minutes that would take nearly 1 million years to solve using a classical supercomputer.” Let’s be real, though – quantum computing is complex, and predicting its real impact on the market is challenging, to say the least. But Louis and his team have been researching the topic heavily… and just held a free briefing on it to prepare you for Nvidia’s big “Q Day” announcement next Thursday. See, Louis predicts that Nvidia will be the one to figure out a way to marry AI with quantum computing in a way no one has ever done before. We’re talking about the possibility of a new technological breakthrough that could affect industries worth a combined $46 trillion. That means it’s time to start looking at the “pure play” quantum companies that Nvidia and other Big Tech companies are partnering with. So, don’t miss this briefing that gets you ahead of the crowd… and ahead of the news outlets… Because by the time they’re all talking about this, it will already be too late. Go here to watch now. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily | 
No comments:
Post a Comment