In the first three weeks of 2024, the markets have been primarily led by technology-related stocks. Technology stocks bounced last week after selling off in the first week of the year. Last week, the S&P 500 rose +1.17%. Only two sectors outperformed that mark. The Communications sector was up +1.38%, while the Information Technology sector rose a whopping +4.13%. Meanwhile, the equal-weight S&P 500 (which evenly weights its 503 components) finished slightly down for the week.
Despite the underwhelming performance of the average S&P 500 stock this year, the index continues to be propped up by its largest components. The average “Magnificent 7” stock is up 4%, while the Median Mag 7 stock is up 6%. Essentially, the biggest stocks and sectors have been the primary force driving the S&P 500 higher in the initial weeks of trading.
Sector Rankings
According to Canterbury’s Volatility-Weighted-Relative-Strength indicator, only three sectors have a higher risk-adjusted ranking than the S&P 500. These three sectors, constituting over half of the S&P 500’s market capitalization, have propelled the index higher in 2024 while other sectors have lagged behind in risk-adjusted basis.
Canterbury Investment Management. Sectors ranked use data from SPDR ETFs. Sectors are ranked by Canterbury’s Volatility-Weighted-Relative-Strength indicator.
Chart of the Week: Amazon (AMZN)
Amazon, the largest stock in the Consumer Discretionary sector, holds the spotlight this week. Although the Discretionary sector ranks sixth among the 11 sectors, the recent decline in Tesla (the sector’s second largest stock) has contributed to this lower sector rank. For more insights on Tesla, refer to our previous updates this year.
Canterbury Investment Management. Chart created using Optuma Technical Analysis Software
- At Point 1, Amazon broke down, then rallied to a peak during the summer of 2022, establishing the initial resistance level.
- At Point 2, following a steep decline, Amazon began to show more stable characteristics and upward fluctuation. The stock rallied to the previous peak (resistance level), before pulling back below its 50-day moving average.
- At Point 3, Amazon rallied to the resistance level once again, this time breaking through. The stock recently tested the previous resistance for support, which held, leading to a bounce higher.
- Point 4 shows the stock’s MoneyFlow index, a volume indicator, indicating positive divergence despite the share price not hitting a new high.
Bottom Line
The markets are tethered to the performance of technology stocks. The Information Technology sector, being more than double the size of the next largest sector, along with the Communications sector, Tesla, and Amazon, collectively accounts for 42% of the index’s capitalization. Canterbury’s Portfolio Thermostat strategically embraces positions in leading sectors like Information Technology and Communications, as well as a stock position in Bank of America from the financial sector, utilizing a diversified approach.
Despite the dominance of the technology sector, the portfolio is also exposed to other sectors, with considerations such as the weak performance of the Consumer Staples sector, currently ranked 8th out of the 11 sectors. For risk management, the Portfolio Thermostat leverages inverse positions in areas like Emerging Markets, decreasing exposure to volatility during turbulent market conditions.
The adaptive nature of the Canterbury Portfolio Thermostat enables it to navigate ever-changing market environments, adjusting its holdings and allocations to maintain stable volatility while managing risks effectively.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
