Rob Anderson, CFA

Margin debt rose to a record high, with the rate of change reaching levels suggesting excessive speculation. Reversals from extremes, like we have seen recently, have often been associated with tops and consistent with much lower-than-average returns up to 18 months later.

Dispersion readings vary significantly at the sector level. At the extreme end are the Growth sectors of Technology and Communication Services. Driven by the Software selloff in February, dispersion for Technology has jumped to the second highest on record behind only 2000.

The benefit from buying winners and the drag from buying losers has rarely been greater. The magnitude of return dispersion for S&P 500 stocks is more than 5.0 standard deviations above the long-term average, only higher following the dotcom crash, the GFC, and COVID reopening.

Going into a crisis event, defense typically leads, but coming out of the crisis event Cyclicals like Consumer Discretionary, Financials, Technology, and Communications Services recapture leadership $SPX $SPY $XLY $XLK $XLC $AAPL $AMZN $GOOGL $META $MAGS $XLF $JPM $BAC $HOOD $KRE $QQQ h/t @_rob_anderson

For perspective, $XYZ sales per employee flatlined over the past year and remains well below the high reached in 2022.

Yep.

Consumer Staples is looking less and less like a "value" play, with the sector's forward P/E ratio now at a record high.

Big breadth divergences among sectors, but Value clearly holding up better than Growth across all moving average periods up to one year.

No software stock has escaped the selloff unscathed. As of February 9, 100% of industry stocks were in drawdowns of at least 20% from their 52-week highs. Almost 80% saw a drawdown greater than 30%, the highest reading on record outside of an equity bear market.

$MSFT / $SPY

@thirdthrowaways @NDR_Research Here it is back to 1972.

@_rob_anderson @NDR_Research Thanks is there a way to get even longer timeframe?

Time will tell if the tech selloff is the start of a long-term rotation from Growth or a blip. But for perspective, Technology has averaged six declines per year greater than 5%, two greater than 10%, and one greater than 15%. Declines of 20%+ occur about once every two years.

Unlike 2022, when analysts aggressively turned more negative on tech sector earnings estimates, consensus forward estimates have moved higher amid the selloff this year. As a result, some valuation metrics are already looking a lot less extreme. $MSFT

Cyclical leadership is usually a positive for stock market returns; however, Energy leadership has been the exception. The S&P 500 has fallen at a greater than 7% annualize pace when Energy has been the top-performing sector, on average.

Cyclical sectors continue to show broad-based relative strength. Will be watching to see if that leadership fades and turns more defensive as earnings season progresses.

Global breadth, measured by the percentage of ACWI markets within 5% of a one-year high, hit a new cycle high at 92%. It is the highest reading for the indicator since 2007. @NDR_Research

Late-cycle leadership rotations into Materials have not been uncommon. Of the four prior bull markets since 1974 that lasted into year four, two cases (1990 – 1998 and 2002 – 2007) saw relative strength rotations occur roughly at this point of the cycle. @NDR_Research

Companies have successfully defended profit margins despite tariffs, with S&P 500 margins near record highs. The margin resilience has not come only from the mega-caps, with more than 70% of S&P 500 industries with rising gross profit margins as of Q3. @NDR_Research

Foreign investors hold a record amount of U.S. stocks. Total holdings jumped to $20.8 trillion in Q3, representing 32.4% of all foreign-held U.S. financial assets. The percentage has eclipsed the prior record set at the 1968 bull market peak.

Small-caps are the clear standouts among the Russell style boxes. Large-cap Growth is the biggest laggard.