This Week's Market Theme: Rotation

Can you spell R-O-T-A-T-I-O-N? That's what I'm seeing. Look at the performance of some of the large financials this week:

Bank of America down 4.2%

KeyCorp down 2.8%

Comerica down 2.4%

SunTrust down 1.8%

PNC down 1.6%

Now look at the performance of large commodity and industrial stocks:

CLF up 8.6%

Freeport McMoRan up 6.3%

BHP Billiton up 2.7%

Alcoa up 6.8%

And a few techs this week:

Micron up 14.3%

Oracle up 8.2%

EMC up 6.1%

Apple up 5.9%


Get the point? There is a rotation occurring: out of financials, into tech and global commodity names.

Why is this happening? Thanks for asking:

1) estimates for financials are going lower short term and there is no real catalyst until JPMorgan reports in the middle of April; while certain parts of the business are improving, fixed income trading is likely to be lower — a drag for companies like Goldman Sachs or Morgan Stanley .

2) financials ran up and outperformed going into the dividend announcements last week; those that did not or were not allowed to raise (BofA) were under a little more pressure;

3) talk of additional Fed stimulus (QE3) on drooping economic numbers are not good for banks, as it implies lower rates for a longer period;

4) early signs are that techs have had results somewhat better than expected;

5) traders have decided that the global growth and reconstruction story is the one to focus on going into the end of the quarter.

One thing bugs me: stock and commodity traders are aggressively playing the inflation game (gold, silver, and base metals up)...but the bond market guys...don't seem to have entirely swallowed the story. 10-year Treasury yields have been relatively unchanged this year, at about 3.3 to 3.4 percent. True, they rose toward the end of last year, but we've had four months of additional data since then...and they have remained fairly steady.

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