Are The High Beta (Risky) Names Close To A Turn Or A Breakdown?

1.) OVERDONE – Has the high beta (risky) set of market exposures gotten hit too hard lately? Maybe. Goldman's High Beta Momentum basket is on track for its worst monthly performance in ~17 years. However, the S&P 500 High Beta ETF (SPHB) is still sitting above trend. It's trading at $141.35, while the low end of trend sits at $140. What does that mean? It’s probably closer to a bounce than a breakdown. VIX spiking this morning (19.16) are traders working through option expirations. This probably coincides with a failure of VIX around 20.50, which would shake out some investors.

2.) ROTATION – Despite the day-to-day rotation beneath the surface, cyclical leadership remains firmly intact. The spread between cyclical and defensive industries is still positive, a condition that has historically coincided with above-average S&P 500 returns.

3.) MAG7 – As early as last month, the MAG7 names were continuing to lag behind semiconductor companies by a pretty wide margin. Now, the MAG7 names are rising while SOX falls, and it’s become a significant divergence. The question on my mind is whether we will soon get announcements that MAG7 is about to scale back capex spending. The yellow line in the chart below shows the MAG7 names via the Roundhill ETF, and the purple line represents the Philadelphia Semiconductor Index.