Where to Invest to Shelter From the Market Rotation Crossfire
Posted at 5:03 AM EDT on Friday, May 15, 2015
Maybe I have just been through too many, but sometimes I find these rotations fairly hilarious. Take yesterday's movement. We tend to view it as a strong dollar/weak dollar foreign/domestic sales issue.
But if you boil it down that way, you miss a lot of the fun. For instance, some of my more rotational- oriented friends are always quick to point out the companies with stocks that are so strong that they buck the rotation.
For example, yesterday there were two sectors that shined despite the rotation: the banks and the biotechs. These are both conundrums.
First, the banks are a conundrum because there is no reason whatsoever for them to be rallying unless you think that rates are headed higher. The comparisons will not be easy. This quarter will not be special. There is no catalyst unless you count no new prosecutions as a catalyst. Sure, they are cheap. But so what?
Therefore let's take the higher rates issue head on. There is no way that the rest of what is working would be working if, indeed, rates are headed higher. It is antithetical to the industrial thesis and at cross purposes with the strength in the higher-yielding foods and drugs. Those have been far more tethered to rates than the dollar.