It’s an anniversary!

It’s hard to believe, but June 16 will mark one year since the percentage of new 52-week lows peaked – meaning it was a year ago when the largest number of stocks made new lows. 

Here’s a price chart for Russell 3000. In the upper panel, you can clearly see that the index bottomed in October 2022.

Prior to the index bottoming, stocks bottomed. 

The lower panel illustrates the peak of new 52-week lows that took place in April and again in June, before beginning to subside.

Back then I was reminding our investors that before stocks can go up, they have to stop going down.

And it took some time, but it finally happened. The peak was in June 2022, thereafter, we saw fewer and fewer stocks hitting new 52-week lows. 

So, how have sectors fared since?

Despite the scary headlines and concerns about inflation, the Fed, and recession, the sectors that performed poorly in 2022 (Tech, Communications, and Consumer Discretionary) have shown surprising resilience.

They, along with Industrials, are the top-performing sectors of 2023, with returns exceeding 20%.

Financials are arguably the most important sector of them all.

The fact that XLF is up over 10% since June 2022 is not bearish!

Also of note – last year’s strongest performers, Energy, Utilities, and Staples are now lagging behind the new leadership group. 

We’re seeing continued rotation out of defensive sectors in favor of offense and growth.

I realize that there has been this continued narrative around breadth – or lack of market breadth – however, this kind of sector rotation is very normal bullish behavior.

And it’s not just on the sector level. We’re beginning to see rotation into Small-Cap stocks. 

Between Large-Cap stocks and Small-Caps, it is Small-Caps that are often considered riskier, so to see them catching a bid is another bit of bullish evidence not to be overlooked.

Here’s the Russell 2000 Small-cap index (IWM) gaining nearly 12% from its May low.

It’s about the weight of the evidence…

All this rotation from Defensive sectors to Offensive sectors and additional rotation into Small-Cap stocks are all signs of a Bull Market environment.