Hello TheoTrader,
Holiday trading is in full swing, but I'm not giving much weight to the Santa Claus Rally period right now.
My focus is on where capital rotated this quarter at the sector level. With only three trading days remaining in 2024, the Q4 data is essentially complete—giving us a meaningful foundation to assess how Q1 2025 may unfold. Here's the sector performance ranking since the start of Q4:
Those following along over the past few months won't be surprised to see healthcare leading the quarter. The sector underperformed for years before finally catching a bid.
This rebound invites two interpretations. The bullish case points to sector rotation as the lifeblood of healthy bull markets. The bearish case notes healthcare's traditionally defensive character.
Healthcare finishing atop the Q4 rankings suggests elevated volatility ahead in Q1. To be clear—I'm anticipating a correction at most, perhaps 10-15%. A bear market isn't on the table.
You'll also notice that most sectors from financials through communications returned between 1-4% for the quarter. Nothing spectacular, but consistent with indices trading largely sideways since late September.
Notably, staples, energy, utilities, and real estate all posted negative returns for Q4. When defensive sectors underperform, it typically signals that capital isn't seeking outright safety—though healthcare's strength complicates that read somewhat.
What would signal an all-clear? I'd want to see technology, consumer discretionary, and communications begin outperforming meaningfully in Q1.
That said, conditions for a storm don't guarantee the storm arrives. I try not to become too attached to specific market outcomes—it's a recipe for disappointment over time.
Enjoy the holiday weekend,
Gianni Di Poce
THEOTrade