Risk-on assets are rising. Risk-off assets can’t keep up.
That’s exactly what you see in healthy bull markets.
The S&P 500 High Beta Index just closed at new all-time highs. Nearly half of it is Tech, with big help from Financials, Industrials, and Consumer Discretionary – classic risk-on leadership.
And it’s not just breaking out on an absolute basis. High Beta is also ripping relative to Low Volatility – a defensive group dominated by Utilities and Consumer Staples.
On Friday, the S&P 500 Low Volatility Index hit fresh all-time lows relative to High Beta.
In other words, the stocks that should lead in a healthy bull market are leading.
The stocks that should lag are lagging.
So, does this look like a healthy bull market to you?
All-Time Highs for High Beta
Sector rotation is the lifeblood of a bull market. I say it all the time because it’s true.
A month ago, when everyone was panicking about “weak breadth” and calling for deterioration, I kept pointing to the risk-on rotation happening beneath the surface.
Turns out everybody was wrong.
High-beta stocks – powered by Technology and other aggressive sectors – remain in a massive uptrend and just closed at new all-time highs:
Technology alone makes up nearly half this index. And Tech just finished the week with 10 straight up days, one of its longest winning streaks in history.
Risk-on leadership doesn’t get much clearer than that.
Winning and Outperforming
It’s one thing to win. It’s another thing to dominate.
That’s exactly what High Beta is doing to Low Volatility. Risk-on assets are steamrolling defensive assets, exactly what you should see in a raging bull market.
Look at the chart: It’s lower left to upper right, with a monster rip off the spring lows:
If you’re trying to build a bearish argument, this isn’t helping you. It’s doing the opposite.
When markets eventually start to deteriorate, you’ll see it here first. You’ll get defensive rotation. You’ll see this ratio roll over.
You’ll see High Beta start underperforming. You’ll almost certainly see a divergence with the S&P 500 before anything truly unravels.
But that’s not happening.
We’re seeing the opposite. More and more stocks are going up.
The small-cap Russell 2000 just closed the week at new all-time highs.
The S&P 500 Ex-Mag 7 (XMAG) – an index that intentionally removes the “Magnificent 7” – also just hit new all-time highs.
This isn’t an AI story or whatever narrative they’re pushing this week. It’s broadening participation across risk-on sectors and across global markets.
You can fight it, or you can embrace it.
We choose to embrace it.
This Week in Everybody’s Wrong
On Monday, we saw what a maturing bull market looks like.
More stocks and different stocks are working, and opportunities are multiplying.
On Tuesday, we opened our eyes and saw the little guys coming.
The weight of the evidence in small caps keeps pointing higher.
And it looks like uptrends for the most important sectors.
On Wednesday, we explained how the Santa Claus Rally really works.
There’s always a crowd leaning the wrong way.
This is a facts-only operation, and we profit from inattention.
On Thursday, we broke down massive bases in two of the biggest stocks on the planet.
You know how it goes: “The bigger the base, the higher in space.”
What happens when TSLA and AMZN really get going?
On Friday, we talked about a simple fact: You don’t get real bull markets without Financials.
And, right now, Financials aren’t just participating, they’re leading.
Here’s the most crowded wrong trade on Earth right now.
On Saturday, Senior Analyst Jason Perz looked at the near future of the commodity space.
The market is coiling, anticipation turning into the next surge.
Here’s why Energy is poised for a powerful breakout.
Have a great Sunday.
We’ll see you Monday morning…
Stay sharp,
JC Parets, CMT
Founder, TrendLabs