Volatility Up and Down as The Market Rotates

But humans are accustomed to regular, rotational changes. We’re used to seasons changing. We’re used to markets shifting too.

Single Largest Decline Since March

Right now, we’re witnessing volatility up and down as the market rotates. It started right when the calendar flipped to August and the SPDR S&P 500 ETF Trust (SPY) fell hard:

All major indices fell. The S&P 500 dropped 1.6% – its single largest decline since March.

This was foreshadowed by our Big Money Index (BMI), which is a 25-day moving average of Big Money flows. The BMI showed buying was fading. It fell to levels not seen since May:

Hence, there’s a change in character under the surface.

But it’s not all that surprising. August is hurricane season for stocks, followed by typically washed-out Septembers. But then the fourth quarter kicks off seasonal strength:

So, we often experience solid ends to the year. But there are even upward swings during the seasonally bad months (e.g., the market’s performance on Aug. 22 after rate cuts became more probable).

More of a Rotation

The BMI measures thousands of stocks daily from all levels of the market. When the index turns south, either widespread selling is occurring or there’s an ongoing rotation.

The recent pullback is more of a rotation. Some of the worst performing areas of the market have been semiconductors, including the iShares Semiconductor ETF (SOXX), mid-caps (using the iShares Russell Mid-Cap ETF (IWR) as a proxy), and value stocks:

That makes things tough for now. But on the flipside, growth stocks have been cruising (see the Russell 1000 Growth index).

This means sectors are rotating, which is part of a normal, functioning market:

In other words, the outflows are actually healthy.

Winners Win, Even in Down Markets

When there’s volatility, it doesn’t automatically mean all stocks tumble. There are always gainers even as indexes fall and outflows persist. Winners win, even in down markets.

For instance, Palantir Technologies (PLTR) has been one of the strongest scoring stocks in our data all year. It hasn’t seen one outflow:

The shares have been in demand and all over our Outlier 20 report, which showcases only the best stocks with the highest quality flows. Each blue bar is when PLTR shares appeared on our elite list:

This is why using MoneyFlows during volatile markets can be such an advantage. There are big trends “hiding” in plain sight, if you know how to spot them (follow the flows).

Spot the winners early with MoneyFlows. Hop on board some of the biggest trends hiding in plain site.

If you are a Registered Investment Advisor (RIA) or a serious investor, take your investing to the next level and follow our free weekly MoneyFlows insights.

Note: the author holds no positions in any securities mentioned in this article.