We’ve been looking at sector rotation quite a bit recently here at BullMarkets. Last week we mentioned that the Dow:Russell ratio (large cap vs. small caps) is about to cross above its 200 day moving average for the first time in a long time.
This means that the Dow is starting to outperform the Russell 2000 for the first time in a long time.
The Dow:Russell ratio has now officially crossed above its 200 day moving average.
Likewise, the S&P:Russell ratio has crossed above its 200 day moving average for the first time in 132 trading days.
Here’s what happens next to the U.S. stock market (historically)
As you can see, sector rotation is mostly a short term, medium term, and long term bullish factor for the U.S. stock market.
There is only 1 real bearish case out of these 10 historical cases: September 2001.
That historical case doesn’t really apply to today. It occurred AFTER the S&P had already fallen -35% in the 2000-2002 bear market. With the S&P near all-time highs today, these are clearly 2 different market environments.
Click here for more market studies