Wednesday's Market Minute: Either/Or, No More?

The stock market spent much of the past year divided along the lines of quarantine vs. recovery; the bifurcated trading experience that saw small-caps and mega-cap tech, or value and growth stocks, often moving in opposite directions. Technician and frequent TDAN guest Helene Meisler called it the Either/Or market: either quarantine growth stocks were up due to Covid or economic concerns, or cyclical value stocks were leading on optimism and recovery. But rarely both did the same thing.

We're getting another taste of it this week, but it may not last, judging by how the two ends of the spectrum have aligned lately. The 20-day correlation between the Nasdaq and the Russell last week hit 0.96, the highest since June last year. The same relationship between the momentum ETF MTUM and value fund VLUE is 0.75, compared to deep inverse readings in January, March and May. Even more fascinating is how, for the past month, gyrations in the work-from-home WFH ETF have mirrored the AWAY fund, which tracks hotels and booking stocks. I'm not sure how significant this is, but it is interesting at this moment given A) the global reopening is happening in earnest and B) expensive high-growth are significantly less expensive following a quarter-long beatdown.

One could think these two points mean the market is ripe for a broad rally. It could also mean that investors see these once-divergent groups as having one crucial thing in common: valuation. Tech stocks may not be as expensive as they were in February, but they're still expensive by any standard metric. And while reopening stocks may not boast the same multiples as tech, many of these shares are trading far above their pre-Covid highs. Want to bet on infrastructure? Caterpillar is 65% above its 2019 high. How about resurgent travel? Expedia is 28% above its 2019 high. Concert stock Live Nation is 20% higher. There are sure to be flashes of the Either/Or market, but if valuation is now priority number #1, it's more likely either everything's going up together, or everything's going down together.

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