Sector Rotation: Technology and Transportation Stocks Reverse; Flight to Safety Lifts Utilities and Consumer Sectors; New Market Leaders Emerge

The congruence of multiple market forces is causing sudden shifts in the stock market:

  • A dramatic sell-off of large cap technology stocks triggered a flight to safety with potential benefits to defensive sectors, such as utilities and consumer staples.
  • The decline of the dollar versus all major currencies causes rallies in both cyclicals and commodity stocks. The energy sector shows signs of bottoming and bullish turn-around.
  • Higher energy prices are hurting airlines and transportation stocks, in general.
  • International markets continue to be attractive choices for diversification.
  • The strongest sectors continue to advance.

Sector screen is provided by Fidelity Sector Report

Today, large cap tech stocks experienced a classical bearish reversal day: the technology-focused Nasdaq 100 index first made a new record high, but by early afternoon sold off on high volume:

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On the other hand, defensive sectors, such as consumer staples and utilities, are attracting attention from investors:

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The dollar continued to decline against all major currencies:

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Since commodities are priced in dollar-terms worldwide, the weakening dollar has contributed to the recent rally in commodities stocks:

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Another beneficiary of the weak dollar is the cyclicals sector, also known as the consumer discretionary sector. Many of the companies in this sector are large multinational companies with overseas earnings that become more valuable when the dollar declines.

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Increasing energy prices are helping energy stocks, but hurting the transportation sector.

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International investments in Asia and Europe continue to do very well in the current market environment:

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The strongest domestic sectors right now are the media, defense, and materials sectors:

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Biotechnology stocks pull back

FBIOX chart

We reported on February 15, that after a huge run-up the biotechnology sector became overbought and ripe for a pull back. The Fidelity Select Biotechnology fund (FBIOX, last change: -0.12%) indeed has corrected in the last few trading sessions. If FBIOX manages to find a support level, we wouldn't be surprised to see a new upleg getting under way in the near future.

Technical analysis screens are provided by FidelitySignal.com