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“It wasn’t the money, it was just that we had them on the run and gave in. They knew it, and that’s why they wanted to come to terms.” – Al Davis
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In a week that has been quiet on the market, economy, and policy fronts, one of the biggest stories has been the merger between the PGA and LIV Golf, and it came 57 years and just two days after what was the most important merger in US sports history when the NFL merged with the AFL forming what has gone on to become the most formidable league in all of professional sports. This week’s merger in golf hasn’t been without controversy, but with time, will we look back on this merger as anything nearly as significant?
As we said, it has been a quiet week, and this morning is no exception. The only economic reports of note today are Jobless Claims and Wholesale Inventories, and they’ll also be the last reports of the week. Jobless claims were mixed as initial claims came in at an 18-month high of 261K while continuing claims were lower than expected (1.757 mln vs 1.802 mln) falling to their lowest level since February. Equity futures are slightly higher but basically unchanged. Likewise, crude oil is up fractionally, and treasury yields are higher across the curve.
Market rotation has been a common theme this year, and throughout the first week of June, we’ve seen it again where the winners YTD have underperformed as the laggards lead. Look at the chart below which compares the YTD performance of major equity index ETFs (x-axis) to their performance in the first week of June. With its 31.2% YTD gain, no index ETF has performed better than the Nasdaq 100 (QQQ), but in the first week of June, it is the only index ETF up less than 1%. Conversely, the Russell Microcap ETF (IWC) was the second worst-performing index ETF YTD, but it’s the best performed during the first week of June (+8.25%).
At the sector level, the inverse relationship hasn’t been quite as notable, but it has still been a factor. Technology (XLK) and Communication Services (XLC) are the two best-performing sector ETFs YTD with gains of over 30% each, but in the first week of June, they’ve been two of the three worst performers. Meanwhile, Energy (XLE), the worst-performing ETF this year (-6.11%), has rallied more than 7%, leading all other sectors. There have also been some exceptions, though. Consumer Discretionary (XLY) is the third best-performing sector YTD and it remained near the top in the first week of June as the fifth best-performing sector. Meanwhile, Utilities (XLU), Health Care (XLV), and Consumer Staples (XLP) were among the weakest sectors YTD, and they continued to lag in the first week of June.
Whatever side of the trade you are on, the question of whether this rotation is a trend shift or not is important, but the fact that it has coincided with the start of a new month would suggest that it has been more a function of rebalancing than a real trend shift.
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