The S&P 500 may be at record highs but underneath the surface, the Great Rotation of 2014 is underway. And, that could be bad news for stocks ahead.
According to TrimTabs Investor Research, there has been a "massive" rotation out of growth stocks and into value stocks this spring. Since the start of April, growth-oriented exchange-traded funds (ETFs) redeemed $5.6 billion while value-oriented ETFs issued $3.9 billion.
Broken out by size, $4.6 billion were redeemed out of large-cap growth stocks and $2.6 billion were issued in large-cap value stocks. Meanwhile, $750 million were taken out of small-cap growth companies and $150 million were issued in small-cap value ETFs.
|Growth||% of assets||Value||% of assets|
|Large cap||-$4.6 billion||4.9%||+$2.6 billion||2.5%|
|Small cap||-$750 million||5.9%||+150 million||1.0%|
Source: TrimTabs Investment Research
Gina Sanchez, founder of Chantico Global, sees this as a trend that will continue.
"All of the defensive sectors have performed quite well this year," said Sanchez, a CNBC contributor. "A lot of the highfliers and momentum stocks have just gotten destroyed. That's going to continue."
However, Sanchez sees this less of a move into value and more about the markets dumping momentum stocks. That could continue until those momentum stocks have more "realistic ranges" in value, she says. In the meantime, that could hurt the overall market.
"I think this defensiveness is going to continue," Sanchez said. "We could actually see a correction in the market as a result of that continued concern."
Richard Ross, global technical strategist at Auerbach Grayson, also thinks a correction is coming.
Although Ross' charts show that the benchmark S&P 500 index has remained above its rising 150-day moving average in a well-defined trend channel since June 2013, it has been unable to break above the 1,900 level.
And, "The longer-term structure remains vulnerable," Ross said. The S&P 500 may have stayed above its 50-week moving average since 2012 but Ross believes the index is starting to move far from its 150-week moving average, currently around 1,500. That could be a potential target.
"That has to be considered a possibility," Ross said. "Yes, we can remain above trend and go even longer higher. But, I think that this move to value over growth – to bonds over stocks, if you will –tells you that the market is looking for insurance. It's scared and, in the end, there will be nowhere to hide."
To see the full discussion on the S&P 500, with Sanchez on the fundamentals and Ross on the technicals, watch the above video.
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