Yesterday was all about rotation for equity markets, and the chart below puts it all into perspective.  In the chart, we have broken the Russell 3,000 into deciles (10 groups of 300 stocks each) based on each individual stock’s performance from the recent market low on 5/29 through the close on Wednesday (6/6).  The top-performing stocks from 5/29-6/6 are in decile one (on the left side of the chart), while the worst performers from 5/29-6/6 are in decile 10 (on the right side of the chart).  The decile of top performing stocks from 5/29 through 6/6 (which were up an average of 15% during that time) were down an average of 0.93% on Thursday.  The only decile of stocks that averaged a gain yesterday was the one made up of the stocks that had performed the worst recently leading up to yesterday.  You can’t get a clearer example of investors selling their winners and buying their losers than this!

In the last year alone, there have been five other days similar to Thursday where 1) the DJIA was up on the day and the Nasdaq was down, and 2) the performance spread between the two indices was more than a full percentage point.  Following these five similar days, there was no clear trend of outperformance by either index over the following week or month, so as far as yesterday’s trading goes, we wouldn’t read anything more into it than investors re-balancing and lightening up on some winners that had seen monster gains over the prior week.

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