Pick Your Headline - KKM weekly commentary
Pick Your Headline - markets have a lot to grapple with as we navigate the last full week of Q3. Further virus restrictions, reports of suspicious transactions at banks worldwide, & doubts over further economic stimulus as the battle over filling the vacant Supreme Court Justice position rages on; to name a few. Despite the emotion, U.S. equity markets continue to grind higher.
"If you don't like the road you're walking, start paving another one." Dolly Parton
Rotation? The month of September has seen significant profit taking in the high flying Tech sector. KKM witnessed massive redemptions in Tech last week as two ETFs (QQQ & XLK) combined for roughly $5B in outflows. The most significant outflow in the QQQ’s since October of 2000. (Great headline but, it is wildly important to remember how much that ETF has grown in AUM over the last 20 years). Technology is still our #1 Sector and we continue to embrace that notion (see CNBC interview below) but, rebalancing to initial 2020 target weights may prove prudent.
Pass the Ketchup Please! - The "Catch-Up" trade that has been discussed multiple times on CNBC certainly has been initiated this quarter. The "Catch-Up" trade is the recent trend that investors are reducing exposure (booking profits) in Tech and reallocating to some of the unloved names like JNJ, WM, LMT, IP, CSCO, NTR, GM, & SYY. All of these names are constituents of our Essential 40 portfolio, a model portfolio of forty stocks considered to be critical to the U.S. economy and American way of life.
Another Systematic Model Shift - In our Sector Rotation Model powered by Nasdaq Dorsey Wright, the latest trade (9/16/20) is to buy the Transports, utilizing the iShares Transportation Average ETF IYT. Using IYT, this provides the model to obtain exposure to names such as FedEx FDX, Norfolk Southern NSC, Union Pacific UNP, Kansas City Southern KSU, and United Parcel Services UPS.
KKM GAME-PLAN
- Federal Reserve Alert: testimony from Powell and Mnuchin before the House and Senate & several FOMC speakers
- Last full week before Quarter end, embrace the sector rotation that is underway
- ?Weakened U.S. Dollar remains supportive of commodities and U.S. equities