Thursday's Market Minute: What To Watch For Today

In the background of the volatility the past 15 months, one great shift in the stock market has gone overlooked, or at least underappreciated. Since Jan. 26, 2018 – the highest-valuation high of the bull market thus far – high-beta companies have underperformed both the S&P 500 as well as low-beta stocks.

One way to see this is the relative strength between a high-beta fund like SPHB and anti-beta BTAL, a relationship which peaked precisely at last year’s frothy high. Or choose a high/low-beta index of your choice, or just look at the performance of utility stocks and low-volatility funds. They all support the same notion: a shift in market leadership.

The reason why this is so important is because high beta stocks have been the lifeblood for much of the bull market, most importantly as the savior of the 2015 to 2016 sell off, when dovish action by the Federal Reserve spurred a massive rush into high-beta names that then almost doubled the performance of the S&P 500 the next two years. The question now is if they will pack the same punch if things go the way many expect and the Fed cuts rates. Historically, a supportive Fed has been a great time to throw money at the growthiest, riskiest parts of the market – doing so this time will mean betting on a losing group. 

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.