Re-opening rotation trades are rocking the market: Morning Brief

Myles Udland

·Head of News

Thu, Mar 4, 2021, 2:54 AM5 min read

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Thursday, March 4, 2021

Tech stocks go red for 2021.

The re-opening rotation trade has been underway for months now.

This trade can broadly be thought of as a move by investors away from stocks that worked in the stay-at-home world of 2020 and into names that should benefit from accelerating economic growth. This new theme kicked off following early November news that Pfizer (PFE) and BioNTech (BNTX) had developed an effective COVID-19 vaccine and has continued almost unabated for more than four months now.

On Wednesday we saw a textbook example of how this trend is playing out with the tech-heavy Nasdaq sliding 2.7% while Energy (XLE), Financials (XLF), and Industrials (XLI) were all higher. Shares of airlines and cruise line operators were also higher on Wednesday while Zoom (ZM) continued its post-earnings slide with the stock now off more than 20% this week and almost 40% from a mid-October record high.

Anything you didn't get to do in 2020 is a winning trade now while the companies that sell the goods and services you were stuck using in 2020 are falling out of favor.

And in a note to clients published earlier this week, the team at Bespoke Investment Group offered a great chart that helps frame this trade not only as a post-pandemic re-opening bet but also as a shift away from the biggest market trends of the last half of the 2010s — market cap concentration.

"At the end of the third quarter of 2020, the 10 largest stocks by market cap in the S&P 500 accounted for 30.86% of the index’s total combined market cap; 4.2 percentage points more than Q2 2000 when the 10 largest stocks’ share peaked at 26.66%," the firm notes.

"But with the ten largest stocks having largely been in consolidation while the rest of the market has pressed on, their share of total market cap has since fallen back below 30%."

Driven by the FAAMNG stocks, the market cap concentrated in the ten biggest stocks in the S&P 500 hit a record high in 2020. But as re-opening trades continue to play out the rally has broadened and the shine has come off some big tech winners. (Source: Bespoke Investment Group)

And so while this chart shows the share of the S&P 500's market cap concentrated in the 10 biggest names is still historically high, the market has been moving away from the big winners not only of the last year but of the last several and into what had been left behind.

Namely: banks, energy, and small caps.

Ben Carlson, director of institutional wealth management at Ritholtz Wealth Management, highlighted on Wednesday the 2020 vs. 2021 performance of tech stocks (QQQ), small-cap value stocks (VBR), and energy. In 2020, the Nasdaq rose 48%, small-cap value stocks were up 6%, and energy was down 32%. In 2021, tech stocks have lost 1.5%, small-cap value is up 13%, and energy is up 31%.

Bloomberg Opinion columnist Conor Sen also flagged Wednesday that there's a growing list of blue-chip companies that were huge COVID winners now looking at tough year-on-year comps with stocks that have come under pressure.

Some of these names include Amazon (AMZN), Home Depot (HD), and Domino's Pizza (DPZ), which all benefitted from pandemic trends like e-commerce, home improvements, and ordering pizza. Each of these stocks is off at least 9% in the last six months while the S&P 500 has gained just under 7%.

A unique market for a unique moment in modern history.

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

What to know today

Economy

7:30 a.m. ET: Challenger Job Cuts, February (17.4% in January)
8:30 a.m. ET: Initial jobless claims, week ended February 27 (750,000 expected, 730,000 during prior week)
8:30 a.m. ET: Continuing claims, week ended February 20 (4.300 million expected, 4.419 million during prior week)
10:00 a.m. ET: Factory orders, January (2.1% expected, 1.1% in December)
10:00 a.m. ET: Durable goods orders, January final (3.4% expected, 3.4% in prior print)

Earnings

Pre-market

8:00 a.m. ET: Kroger (KR) is expected to report adjusted earnings of 69 cents per share on revenue of $30.75 billion

Post-market

4:05 p.m. ET: SmileDirectClub (SDC) is expected to report an adjusted loss of 10 cents per share on revenue of $181.08 million
4:15 p.m. ET: Broadcom (AVGO) is expected to report adjusted earnings of $6.56 per share on revenue of $6.62 billion
4:15 p.m. ET: The Gap (GPS) is expected to report adjusted earnings of 18 cents per share on revenue of $4.66 billion
4:15 p.m. ET: Costco (COST) is expected to report adjusted earnings of $2.45 per share on revenue of $43.81 billion
4:30 p.m. ET: Opendoor Technologies (OPEN) is expected to report an adjusted loss of 10 cents per share on revenue of $244.00 million