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The Diana Ross 'Upside Down' Stock Market

Mar. 04, 2021 1:20 PM ETXLF, ITA, XLP, XLU, IHE, XLE3 Comments
Thomas J. Hayes profile picture
Thomas J. Hayes


  • Hedge Funds are using AAPL and FAANG as a "source of funds"
  • What's working, not working, and what's next?
  • Operation Twist on the horizon?

The song we chose to embody this week's stock market sentiment is Diana Ross', "Upside Down":

Upside downBoy, you turn me inside outAnd 'round and 'round

In our recent weeks' podcasts/video we have continually emphasized that we were watching AAPL as the key to the market. Our view was that the unwinding of several Hedge Funds from the GameStop debacle would take weeks (not days) - and would lead to the use of AAPL and FAANGM as a "source of funds" to meet redemptions (and in some cases - complete fund wind downs). A classic case of selling winners to pay for losers…

Here's what that has looked like:

You've also seen a slaughter of (high-multiple, low profit) growth stocks:

Yesterday's Stats:

At the same time, here's what is working:

Source: John Authers - Bloomberg

As is the case in all new business cycles, the leveraged balance sheet plays outperform - due to their economic sensitivity. When GDP grows fast - off of a low base - these are the groups that outperform:

Source: Sarah Ponczek - Bloomberg

Value has continued to outperform growth since late Summer of 2020.

While we've covered what has and has not worked, the key question now is, "what could work NEXT?"

On Fox Business last week we talked about the "rate of change" - for the rate rise - potentially moderating in ensuing weeks. It appears there is an attempt to make a stand here:

If these levels can hold or reverse for a bit, we could see a significant reversal in defensive (higher yielding) stocks like Consumer Staples, Big Pharma, and Utilities - as their yields would become attractive once again.

Either natural market forces will cause a pause in the rate rise, or we'll begin to see Fed speakers start to "trial balloon" a repeat

This article was written by

Thomas J. Hayes profile picture
Tom Hayes is Founder, Chairman and Managing Member of Great Hill Capital, LLC (a long/short equity manager based in New York City). He started Hedge Fund Tips as a platform to share actionable insights, tips and research for investors/traders to benefit from – based on what he has learned in his years of experience in the Hedge Fund industry.Read Tom's bio here: https://www.hedgefundtips.com/about-tj-hayes/ To get our Free Newsletter go to: https://www.hedgefundtips.com/free

Analyst’s Disclosure: I am/we are long WFC XOM D AEP PFE NVS DFEN K CPB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.


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