Money Is Beginning to Rotate Into This Sector

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Are the retail stocks ready to rally?

Stop laughing. It’s a serious question.

Of course, the retail sector has lagged the market this year. So, investors are right to question the legitimacy of my question.

But, as I’ve argued for several months, we are in a rotational market – where money moves back and forth between sectors. And, it looks to me like the lagging retail sector is getting ready to play “catch-up.”

Let me explain…

Technology has been one of the hottest sectors in the market this year. The Technology Select Sector Fund (XLK) is up nearly 40% in 2023 – far outperforming the 15% gain in the S&P 500.

But, as we pointed out in early June, that outperformance had reached extreme levels. The tech-train had left the station. Investors chasing it were likely to get hurt.

Here’s an updated look at the ratio chart I showed you back then…

This chart tells us how the technology sector is performing relative to the S&P 500.

When the chart is moving lower, the technology sector is underperforming the S&P 500. When the chart is moving higher, tech stocks are outperforming.

You can see how strong the tech sector was for the first six months of 2023. But, that trend changed recently. The chart has turned lower. That tells us the technology sector is underperforming the market.

In other words, money is coming out of the technology stocks. It’s rotating into other areas.

Where?

Well, take a look at this ratio chart comparing the retail sector to the S&P 500…

This is nearly the opposite view of the tech sector. The Retail Sector Select Fund (XRT) significantly underperformed the S&P for the first six months of 2023.

Recently, though, it turned higher. For the past two months, retail stocks have been outperforming the market.

It looks to me like money is rotating out of technology and finding a new home in the retail sector.

If this trend continues, the beaten-down retail stocks – many of which are trading with single-digit price/earnings ratios – could be sharply higher by the end of this year.

Best regards and good trading,

Jeff Clark

Are there any retail stocks on your radar?

Let us know your thoughts – and any questions you have – at [email protected].