Look for Opportunities to Take Money Off the Table<\/h2>\n
You see, contrary to what we’ve been taught, the S&P 500 isn’t really designed to be a gauge of the U.S. economy.<\/p>\n
It’s actually a “market-cap weighted index,” meaning the companies worth the most get the biggest piece of the pie (not the ones with the highest revenue or employing the most people).<\/p>\n
On top of that, “market-cap weighted” means that stocks that had the biggest momentum in the past get even more of the pie when the index periodically rebalances.<\/p>\n
It’s basically one big popularity contest… not a barometer of the economy.<\/p>\n
And the ones that are winning the popularity contest are just a handful of stocks all bunched up in the tech sector.<\/p>\n
So, when I see sectors that typically lead markets higher (like financials) falling 3.5% – while the S&P 500 index keeps making new highs every day – I pause and start looking for opportunities to take money off the table and brace for a correction.<\/p>\n
And it’s not just financials that are off their highs…<\/p>\n
As I mentioned earlier, it’s ironic how financials are falling while the index keeps rising.<\/p>\n
The Financial Select Sector SPDR Fund (XLF) really kickstarted this rally when JPMorgan Chase & Co (JPM) reported earnings on October 13, and the entire sector – along with the market as a whole – began to shoot up.<\/p>\n
Well, this sector is now back to where it was then… So, the gains didn’t stick.<\/p>\n
In addition, regular Market Minute <\/em>readers may recall that before this “melt up” even happened, the market was going through something of a mini panic.<\/p>\n Back then, the market was worried that the big Chinese real estate developer Evergrande was going to cause a broad market collapse from its failure to meet debt obligations.<\/p>\n But here at Market Minute, <\/em>we took a step back and looked at the one sector that would fall quickest if this was indeed true: financials.<\/p>\n On October 8<\/a>, I wrote:<\/p>\n Right now, I’m focusing on the Financial Select Sector SPDR Fund (XLF)… Aside from energy, it’s the only other sector in the S&P 500 making new highs… which is stunning given the weakness in the market lately and the fallout from Evergrande.<\/p>\n So, bears aren’t getting their “I told you so” moment until this chart breaks. Soon, the Evergrande episode will fade away like most market narratives – long forgotten as the long-term trend marches on.<\/p>\n<\/blockquote>\n The market rebounded and news later broke that Evergrande met its debt repayment schedule.<\/p>\n But then, the market rebound took on a life of its own…<\/p>\n\n
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