Momentum Monday - Small Caps Getting Some Love and Strength

Bull markets often correct through sector rotation. We saw another rotation last week. While most of the tech stocks lagged, other sectors came in play – healthcare, biotech, homebuilders, retailers, financials, gold and other metal miners, energy, etc.

The new quarter starts next week. It’ll be interesting to see if small caps can follow through and continue to outperform. This would create a great environment for short-term swings. Or we will see another rotation into megacaps. A lot will depend on the direction of interest rates. They pulled back last week and helped small caps to shine.

People have been complaining about the lack of wider participation in this rally. The past few weeks proved this concern wrong. As money is leaving the perceived safety of the megacap stock, it has been pouring in a wide variety of industries and smaller-cap stocks. This market breadth expansion is positive. You will always find a reason to be concerned. After all, bull markets tend to climb a wall of worry. What is really important is playing the odds. I’ll say again what I said two months ago. Do you want to miss on a strong bull market just because you are trying to perfectly time the next 5% market pullback? The odds continue to favor the long side. Dips in strong stocks keep getting bought. Any corrections so far have taken the form of a sector rotation. We have to be doing what the market is doing – rotate out capital into sectors that are currently in favor instead of complaining our tech stocks are not rising anymore.