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Making sense of the markets this week: March 15, 2021

March 12, 2021 Dale Roberts
Making sense of the markets this week: March 15, 2021


Source: Seeking Alpha

The great stock rotation

Now that we are eyeing the other side of the pandemic, we can see that rotation out of work-from-home to recovery stocks and sectors. In fact, the tech stocks recently moved into a bear market. (We’ll look at that event in this column’s next topic.) 

Recovery stocks are now, well, recovering. They had been hit hard, and they represented a considerable amount of potential value for investors. 

If you look at the one-month and year-to-date columns in the following table, you’ll see that stock sector rotation at work. 

Source: Seeking Alpha, to March 10

Energy and financial services are leading the charge in 2021. Communications services have been a steady contributor throughout the year. 

Today’s stock market was ready for the pandemic

Traditional index-based, cap-weighted stock market ETFs were well-positioned heading into the pandemic. (Again, a pandemic no one knew was coming.) 

And that makes perfect sense in an environment where existing trends are accelerated. A cap-weighted index rewards positive momentum. As a stock or sector of stocks is performing well and is rewarded with higher stock prices, they have a greater weighting within the total stock index. Tech stocks were already doing well heading into the pandemic, with the largest weighting in the S&P 500. 

Those U.S. tech stocks did most of the heavy lifting in the stock market recovery. 

In Canada, Shopify carried the Canadian stock markets at times and became the most valuable company in Canada. Shopify was already a top stock with a generous weighting in the TSX Composite. Given the weighting, Canadian investors benefitted greatly from the incredible success of Shopify, which was accelerated by the pandemic. 



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