Lighten up on last year's winners, buy the losers? Maybe not this year. There's a very timeworn pattern that usually emerges in the first few trading days of the year: Investors rotate. They tend to buy the losing sectors last year and lighten up on the biggest gainers. This is the simplest kind of value trade you can make, and it makes some sense as a strategy for a portion of your portfolio.
It's very early, but it's interesting that this pattern is not playing out, at least not so far.
With the S&P 500 up 1.2 percent in 2017, here's how some of the best performers last year are faring so far:
2016 Leaders in 2017
Not bad at all — they are all holding their own and even outperforming. Here's how some of last year's worst performers have done in the first two days of trading:
2016 Laggards in 2017
Hm. The losers are also doing well! This may be speaking to the underlying trader mentality of the moment: I am bullish, but I don't want to keep buying too much because the market is expensive. I really want the market to drop five to 10 percent so I can buy more.
That's why a lot of traders, like Cannacord Genuity's Tony Dwyer, are neutral on the market at the moment. Dwyer said in a note this morning that the key drivers are in place for a rally to continue — the improving global economy, a steeper yield curve, improved jobs/consumer confidence and the hopes for lower taxes/less regulation/and stimulus.
But the market is expensive, so he's neutral now and "looking to buy any fear-based weakness as it develops." He has a 2017 target of 2,340 on the S&P 500 but admits it "may be conservative."
That's why we keep getting these days where the markets struggle to advance, but the market never drops. Everyone is looking to get more aggressive as market works off its overbought condition, but no one wants to sell!
"I want to get bullish, but we've got to get lower prices," Dwyer told me this morning. "We've got to rid of some of the excessive optimism."