Hey, Ross here:
There’s a strange split opening up underneath the market right now.
It involves two groups of stocks that normally have a pretty predictable relationship…
But lately, that relationship has completely come apart.
Let’s take a look.
Chart of the Day
This chart tracks the correlation between high-beta stocks and low-volatility stocks.
High-beta stocks are the aggressive names. They tend to swing harder when the market moves.
Low-volatility stocks are the steadier, more defensive group.
Most of the time, the two still move in roughly the same direction.
Not anymore.
Their 45-day correlation has fallen to -0.52.
That’s the lowest reading on record.
In other words, the aggressive and defensive ends of the market are now moving against each other more violently than we’ve ever seen.
You can see a few other periods where this relationship briefly went negative.
But nothing quite like this.
Now, a reading like that can make you wonder whether something is starting to crack underneath the market.
So I checked another set of numbers.
This shows the percentage of S&P 500 companies seeing positive revisions to forward revenues and earnings over the past three months.
Right now:
- About 86% of companies are seeing their forward revenue estimates rise.
- And nearly 87% are seeing their forward earnings estimates rise.
Those are very strong readings by historical standards.
So while some of the market’s old relationships are behaving strangely…
The business outlook underneath most stocks is still moving in the right direction.
That’s a combination I’d keep an eye on.
Because periods like this can force traders to rethink assumptions that worked perfectly well for years.
I explain below.
Insight of the Day
Regime changes usually look messy before they look obvious.
When the market starts changing character, you usually don’t recognize it right away.
At first, things just stop behaving the way you’re used to.
A group that worked for years starts lagging.
Something that had been dead money starts waking up.
Relationships you could normally count on start getting weird.
That’s roughly where I think we are now.
I’m not calling this a brand-new market regime based on one extreme reading.
But I also wouldn’t keep trading the last few years on autopilot and assume the same stocks will keep leading forever.
Especially when earnings and revenue estimates are still improving across such a large part of the market.
If this shift sticks, there could be a whole new group of stocks worth looking at.
For instance, this $9 stock sitting right at the center of the AI buildout.
Customer Story of the Day
“I started a few months ago and started implementing the simple strategy with $1000 and have seen a return of over $300.
Ross makes trading very understandable and if you follow along you will make money even with the losers.
Probably the best thing you learn is risk management!”
Ross Givens
Editor, Stock Surge Daily
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