You can see a lot of sector rotation happening underneath the market surface. We just discussed the turn potentially happening in technology stocks. Now, consider the relationship between the Invesco S&P 500 High Beta ETF (SPHB) and Invesco S&P 500 Low Volatility ETF (SPLV), writes JC Parets, founder of AllStarCharts.
Here is the latest example of this rotation. The ratio between High Beta stocks and Low Volatility stocks just hit new 20-week highs.
When stocks are in a healthy environment, you tend to see High Beta stocks outperforming their Low Volatility counterparts. It's in the weaker environments where High Beta historically underperforms.
Look at the chart. Consumer discretionary had been underperforming for a long time, until recently. Consumer discretionary is the second-largest component of the High Beta Index, coming in at 14%, compared to just a 6% weighting in the Low Volatility Index.
Meanwhile, technology is by far the largest component in the High Beta Index, with a 52% weighting. Notice how tech only has an 8% weighting in the Low Volatility Index.
These two "Risk-On" sectors have been underperforming. So you can see how the High Beta / Low Volatility Ratio hasn't even broken out above its prior cycle's highs.
But it just closed at new 20-week highs. That's a good start. Sector rotation Is the lifeblood of a bull market. You're seeing it.
If you're looking for a catalyst to take this bull market deep into 2025, then look no further than this rotation into High Beta stocks.
