Energy and these 2 other sectors led the S&P 500. Now they’ve collapsed. You can find out here why this could be good for the stock market.

Finally, the sectors with the best performance on the stock market had to be dissolved.

And that may be exactly what this bear market has ordered, according to Jonathan Krinsky, Chief Market Technician at BTIG.

As of June 8, Energy, Utilities and Materials are the SPX of the S&P 500,
Worst-performing sectors, which fell 20%, 12% and 14% respectively, he told clients in a note Monday. As of June 7th, these were the hottest sectors – up 65%, down 2% and 5%.

“A dissolution of the leading groups was a necessary development, in our view, in order to reach a more permanent low. While we still don’t think this bear market has reached its final bottom, The Generals’ recent hit is likely enough for a quarter-end rebound,” said Krinsky.

BTIG analysis and Bloomberg.

Last week marked the worst weekly return for the S&P 500 since March 2020, a move prompted by the US Federal Reserve’s biggest rate hike in a decade. The index is down 23.39% from its record close of 4,796.56 on Jan. 3, 2022, meeting a technical definition of a bear market.

And when that bounce comes late in the quarter, Krinsky expects defensive and energy stocks to underperform long duration/growth stocks. Laggards like the tech-heavy ARK Innovation ETF ARKK,
IPO of the Renaissance,
which tracks the most liquid newly listed companies, and SPDR S&P Biotech ETF XBI,
didn’t make any new lows while the “generals” sold off, he said.

And: Why stock market investors are “nervous” that an earnings recession is looming

Krinsky expects the S&P 500 to be below 3,500 before “a definitive capitulation event,” but he points to other factors that also point to an end to the sell-off.

The percentage of Russell 3000 RUA,
Companies trading above their 200-day moving average fell into single digits as energy and defensive stocks took a hit — a “necessary development to find a bottom,” Krinsky said.


BTIG analysis and Bloomberg

One thing standing in the way of a definitive washout is the VIX VIX,
also known as the Cboe Volatility Index. And “the VIX curve has never inverted nearly 10 points, which has marked every major bottom over the past 15 years,” he said.

Read: Stocks are still too expensive and rising interest rates could shake the financial system, Seth Klarman warns Energy and these 2 other sectors led the S&P 500. Now they’ve collapsed. You can find out here why this could be good for the stock market.

Brian Lowry

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