Sam Stovall

Stovall points to specific sub-industries that are participating in a broadening market rally. This is a technical momentum trade. These specific sectors have recently moved back above both their 50-day and 200-day moving averages. When price crosses above these averages, it often signals a shift from a downtrend to an uptrend and indicates healthy market breadth. 30 sub-industries moved above these key technical levels last week, with these three sectors explicitly named as leaders. A reversal in the broader market could cause these sectors to fall back below support levels.

Sam says the January effect is working again and investors are not abandoning stocks but rotating down in market capitalization; he cites the S&P MidCap 400 recently trading at about a 30% discount as a reason to favor small/mid-cap exposure.

History favors an alternating strategy: after an up year, last year's winners tend to keep winning. Sam specifically points to communication services, industrials, and technology as the sectors to stick with; since 1990, the sector-level approach added about 300 basis points, and industry-level tests added more than 700 basis points, outperforming the market 70% of the time.