What's Driving High and Low Beta?

Risk appetite has softened with market volatility picking up. High Beta stocks have sharply underperformed Low Beta stocks. Is this rotation into low beta durable?

Digging deeper, this is really a sector story as Semis and Utilities have major influences on this risk rotation. Semis command a 23% weight in high beta, while Utilities have a 14% weight in low beta, making them the largest weights in their respective indices.

Consequently, Semis vs Utilities paints a relative performance picture similar to high vs low beta. The average Utility stock has outperformed the average Semi stock. So, are Semis positioned to resume their leadership over Utilities?

Looking at the internal trends of each group, we see a difficult near-term setup for Semis. While Utilities have 94% of stocks above their 200-day MA, Semis have weakened to 44%, which was last tested in April.

Trend backdrops are important when looking to play weakness opportunistically or reduce exposure on rallies. For now, Utilities (and other low beta stocks) are in strong relative position, meaning rallies in Semis (and high beta) should be evaluated with a more critical eye. We see this continuing to weigh on the tech sector and other AI names at least until NVIDIA reports on August 28.?

Can the Utilities persist as a leadership trade? Historically, it has outperformed ahead of recessions. But investors have found safety in mega-cap names like 苹果 , 微软 , and the rest of the Mag 7 thanks to their balance sheets and cash flows. We have our guard raised.