The big warehouse rotation
Now that we have our eyes on the other side of the pandemic, we can see this rotation from working at home to stocks and sectors recovering. In fact, technology stocks have recently moved into a bear market. (We’ll look at this event in the next topic in this column.)
The recovery stocks are now recovering. They had been hit hard and represented considerable potential value for investors.
If you look at the month and current year columns in the table below, you can see that the stock sector rotation is at work.
Energy and financial services are leading in 2021. Communication services have made a steady contribution throughout the year.
Today’s stock market was ready for the pandemic
Traditional index-based, capital-weighted stock market ETFs were well positioned on their way into the pandemic. (Another pandemic came that nobody knew was coming.)
And that makes perfect sense in an environment where existing trends are accelerating. A capital-weighted index rewards the positive momentum. Because a stock or stock sector is doing well and is rewarded with higher stock prices, they have a greater weight within the overall stock index. Tech stocks already did well into the pandemic, with the largest weighting in the S&P 500.
These US technology stocks have been responsible for most of the recovery in equity markets.
In Canada, Shopify temporarily led the Canadian stock markets and became the most valuable company in Canada. Shopify was already a top camp with a generous weighting in the TSX Composite. Given the weighting, Canadian investors benefited greatly from the incredible Shopify successthat was accelerated by the pandemic.