Tactical Boating Tips: Don’t Be Scared

In a sluggish start to the New Year, the market tested major technical support levels last week, but thankfully, the bulls came out strong. Keith’s weekly video breakdown highlights the market’s technical setup and the potential for an exciting week ahead.

This upcoming week is packed with potential catalysts that could either excite or worry investors. From a busy lineup of employment news to the release of Fed meeting minutes and a 30-year bond auction, there’s a lot to keep an eye on. As we head back to work after the holidays, it’s worth noting that this week might confirm a bullish January trend trade in many indexes. Plus, with one less trading day due to the Day of Mourning holiday, things could get interesting.

You’ve probably heard about the Magnificent 7 stocks driving the market’s performance, but there’s more to the story than just price action. Earnings growth has been concentrated in these 7 stocks, paving the way for their outperformance. Looking ahead, it’s expected that the other 493 stocks will see better earnings performance in 2025 while the Magnificent 7’s growth is projected to slow down slightly.

Diversification is key, and while many investors believe they are diversified by holding SPY or QQQ, the reality is that the percentage of the top 7 stocks in SPY has grown to 34%. This means that these 7 stocks can account for over half of the gains or losses in the SPY, challenging the idea of true diversification.

While this concentration has been favorable for investors in recent years, it’s important to consider a more tactical approach to investing. Being clear about how diversified you really are can make a significant difference in your portfolio’s performance.

“Tactical” investing doesn’t have to sacrifice performance. For example, in the last 3 years, including the bear market of 2022, owning XLE during the bear market may have been more beneficial than sticking to the leading sectors of XLK, XLC, and XLY during the bull market. It’s all about being strategic and understanding the balance between risk and reward.

Navigating the market’s ups and downs can be overwhelming, but with a tactical approach and a keen eye on diversification, investors can position themselves for success. Keep an eye on our continued coverage of sector rotation, market analysis, and trend trades to stay informed and make informed decisions in today’s ever-evolving market landscape.