Aggressive Traders Are Frustrated as Market Undergoes Major Shift
These groups are now leading, while these are struggling.
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Late Wednesday night, President Trump signed a bill to end the record-long government shutdown. The stock market has been anticipating this event since midday on Friday and has rallied strongly, with the DJIA leading the way.
A big rally into an expected event creates a "sell the news" dynamic, but investors will be shifting their attention now to economic reports and the likelihood of a Fed interest-rate cut on December 10.
There have been mixed reports about the strength of the jobs market, but there are some clear signs of slowing. If that is confirmed, it will cement the likelihood of a quarter-point cut at the next meeting. While there is some concern about lingering inflation, the main issue now is the labor market.
One of the difficulties that economic forecasters face is that the correlation between economic strength and labor-market health is very loose. AI and big-cap technology are driving tremendous economic growth without requiring significant new employees. Much of the softening in jobs is occurring at small businesses, while most of the economic growth is at the mega-cap names.
The market will celebrate a more dovish Fed, but the main story right now is a shift in leadership. The DJIA is leading the way recently with stocks such as Amgen (AMGN) , Goldman Sachs (GS) , Johnson & Johnson (JNJ) , and Merck (MRK) . Meanwhile, the Magnificent Seven (MAGS) is losing momentum, and the tech-heavy Nasdaq 100 (QQQ) is now lagging.
Growing concerns about the profitability and valuation of the AI sector have triggered this rotation. It began to gain traction when Palantir (PLTR) posted very strong earnings and guidance, but the stock sold off sharply on the news. There has been some bounce, but then the data-center group was hit with concerns about growth and valuation.
As a consequence, there has been rotation into pharmaceuticals, biotechnology, financial services, and other non-technology names. This has been tough for many investors who have enjoyed great success by riding the momentum in AI-adjacent sectors like quantum computing, nuclear power, and even cryptocurrencies. Those groups are struggling now, and aggressive traders are having a tough time finding high-beta leadership to replace them. The folks who were trading fast-moving quantum-computing names are not inclined to chase stocks like Goldman Sachs or 3M (MMM) .
The market is in a transition phase, and there is little to do but wait and see how this develops. I’m having a hard time finding attractive technical setups. That issue is always resolved over time, but it makes for very difficult trading in the short term.
We have a mixed start early Thursday as the market digests the reopening of the federal government.
At the time of publication, Rev Shark had no positions in any securities mentioned.
