Sumary of Expect Stock Market Volatility If Covid Cases Peak:
- The Nasdaq is slowing even as yields remain contained the past two weeks, and the price/earnings ratio of the Nasdaq compared to the Russell 2000 (normalized for profitable companies) is back at the highest level since September 2020. Last fall may seem like ages ago, but it was an important moment for markets.
- As yields surged in the first quarter of 2021, there was enough momentum behind the reflation trade that it snapped off what many thought would be an unstoppable rally in expensive, high-growth tech names led by Tesla and embodied by Ark Invest’s flagship growth fund.
- The schism between growth and value at that juncture created some sharp but short-lived volatility, as the rotation into cyclical stocks didn’t get too far as Delta sent COVID cases climbing and economic data started missing expectations amid the backdrop of a Federal Reserve preparing for tapering.
- Mega-cap tech stocks are doing an abnormal amount of legwork again, and the number of companies making new highs has been declining since February.
- Anyone who bought into the high-growth ARKK-style companies in the first quarter is still underwater as the bear market in sectors like electric vehicles persists.