I'm not sure who first coined the phrase that the market takes the stairs up, and the elevator down, but it's proving apt again lately. We're seeing a historic selloff of momentum stocks this week.
Yesterday was the fourth-worst day for the momentum versus value trade since 1999, according to one source. Goldman's list of high-beta momentum stocks was down roughly 7%. "Another quant unwind day," wrote another analyst on X. "I think we are getting closer and closer to having a larger episodic volatility event," like August of 2024 (the carry trade blow-up), or February 2018, he and others are cautioning.
The damage extends to other momentum areas like silver and Bitcoin as well. Bitcoin simply can't catch a bid, and slid below $70,000 this morning, fully retracing its entire post-election move. Silver, which went parabolic last month, is down another 13% today, and down 34% in just the past five sessions.
There are two schools of thought here--risk-off, or rotation?--and I lean towards the "rotation" one. The risk-off argument is that the market leaders are imploding and this is all a precursor to a larger selloff. Datapoints like the high level of Challenger layoffs this morning, or the surge in defensive areas of the market like consumer staples would seem to support that case.
The rotation narrative points to the breakout performance of more cyclical parts of the market. Nine of the eleven sectors actually rose yesterday (tech and financials were the decliners). The S&P had 100 new 52-week highs yesterday, per analyst Frank Cappelleri--the most in fifteen months. And 72% of stocks advanced, the third best day of the year so far. The Dow transports also hit a new record high, even as the S&P fell outright for the fifth day out six.
"Momentum unwinds often take place at economic turning points," noted Piper Sandler's Michael Kantrowitz, who also joined us on the show yesterday to make his case for buying cyclicals here. "Everybody has been pushed into the same stuff for the last three years because of a very narrow earnings backdrop," but earnings growth is now broadening out.
As for how this ends up playing out, Miller Tabak's Matt Maley is watching the chip stocks, which had an ugly session yesterday. "It will be extremely important for the chip stocks to regain their balance," he wrote last night. If not, we could be in for a rougher stretch for the market, he thinks.
Earnings and chip stocks--that's what we'll be watching closely here.
See you at 1 p.m!
KellyTwitter: @KellyCNBC