S&P 500 flirts with record close as tech rally puts a pause on the rotation trade

It feels an awfully long time ago that stocks hit their lows back on March 23rd. However, just 99 days later and the S&P has rallied 51%, hitting an intra-day all-time high and closing just shy off the high set back in February. To put that into perspective, stocks have historically taken an average of 1,542 trading days to recover from their lows.

The rally of 1.4% was the strongest for the S&P for over a month and came despite there being little in the way of progress towards a Covid-19 stimulus bill as House Speaker Nancy Pelosi even came out re-iterating that both sides are "miles apart"on negotiations.

It was a day boosted by the stocks that have led the market back from its depths in March, with the technology sector closing +2.3% and those names associated with the re-opening falling - financials as a result closing -0.3%. However, this week has seen big tech trailing economically sensitive stocks as discussion continues as to whether now is the time investors rotate into value-oriented parts of the market. It should also be noted that today's pause for breath in the rotation is in fact in keeping of what is normally seen when transitioning from a recessionary environment and into an economic recovery.

Another area of note investors should not overlook is the outperformance of transportation stocks over the last couple of weeks as this is also something we would expect to see at the start of a healthy bull market (broadly defined as one in which all sectors contribute to the index moving higher). The likes of FedEx, UPS and Expeditors have all comfortably been outperforming the wider market of late - especially relative to tech and stay-at-home names.

2020 is no normal year but under normal circumstances, focus would be on earnings as to the direction of stocks over the coming months. Instead the focus remains on coronavirus. If the downward trend we have seen in the number of deaths and cases continues and allows states to increasingly reopen and for business to come back, we could indeed see the rotation trade continue for the rest of August. However, as covid rears its ugly head once more this week in countries such as Denmark, France and New Zealand, it is a reminder to investors how hard it is to keep the virus under control and count on reopenings to gain pace. This, together with the question marks that remain over what details will be in the next stimulus package, mean there is still plenty for investors to think about before leaving FAANG and co behind.