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Sector Rotation Ahead?
It was quite an interesting week once again were we saw some sector rotation. After their dominance during 2024, semiconductors took a breather after the FOMC meeting.
I prefer to use the IShares semiconductor ETF to analyze this sector as a whole, also known as SOXX 0.00%↑
As you can see in the chart below SOXX 0.00%↑ still outperformed SPY 0.00%↑ , but the emiconductors took quite a big hit on the 11th after the FOMC meeting, which is when some sector rotation occured. For example, we saw big moves in solar stocks like ENPH, FSLR, JKS, etc.
But, the renewable energy sector as a whole had an excellent week with also stock like PLUG 0.00%↑ and FCEL 0.00%↑ being up significantly on the 11th. It was a trader’s paradise in some of these stocks.
A beautiful trade I made this week was on the Invesco Solar ETF TAN 0.00%↑, this one rallied significantly and as such I could close my written puts for a 50%+ profit in just one day. Much earleir than expected, but I’ll happily take the gain.
TAN opened the week at $40 and close the week at $44.50, as can be seen by the golden lines. The purple lines indicate the high and low of 2024. This will remain an interesting chart to watch.
Time For Small Caps?
In our State of the Market Report, which is now almost 3 months old. We discussed the possibility of a rotation towards small caps as they have been underperforming for so long.
This week we saw a first glimpse of that. IWM 0.00%↑ is up over 6.18% on the week, outperforming SPY 0.00%↑ by over 5%.
Furthermore, the Secured Overnight Financing Rate (SOFR) Futures are clearly showing that the market is pricing in rate cuts. The SOFR futures are a broad measure for the cost of borrowing cash overnight collateralized by treasury securities.
SOFR futures are the primary liquidity pool for hedging USD short-term interest rates, trading alongside the Fed Fund rate for example.
Earnings!
First of all, earnings season is slowly starting, are you excited yet?
We got a couple of big shots reporting next week with GS 0.00%↑ BLK 0.00%↑ BAC 0.00%↑ , SCHW 0.00%↑ , and MS 0.00%↑ in the financial sector.
These are quite important as we saw both JPM 0.00%↑ and WFC 0.00%↑ miss earlier this week. This shows that financial institutions aren’t really benefitting as much from the high interest rates anymore compared to before. This is something that we must keep an eye on.
Wells Fargo had worse than expected net interest income and the provisions for credit losses where higher than expected by the market. As a result, the stock dropped over 5.7% after releasing its earnings.
The one’s I’ll be paying some more attention to are ALLY 0.00%↑ , ASML 0.00%↑ , JNJ 0.00%↑ , TSM 0.00%↑ , and NFLX 0.00%↑ . Especially, NFLX 0.00%↑ has experience with quite dramatic moves after earnings reports.
Will we see a 10%+ drop over there? Which earnings report are you most looking forward to yourself, let us know!
Upcoming
Tomorrow, we will take a look at “The Week Ahead”, in which we will discuss the indexes and take a look at some interesting sectors to keep an eye on.
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