Melt-up

The action in some of the sectors over the past month can be described as a 'Melt-up'   Some of these normally 'boring' sectors have gone parabolic.  What's going on here?

A big part of this buying is not fundamentally driven. These sectors all had strong years leading up to the election.  When the election happened, these sectors gapped up because the perception is that companies in these sectors will benefit from Trump's Presidency. 

Now money managers that were underweight these sectors before the election are buying them because at the end of the year they want to be able to tell their clients that they were invested in them.  This phenomena is not uncommon and it is known as 'window dressing' or 'chasing performance'.

This extra demand for stocks in these sectors will cease at the end of this year.  Because of this dynamic I would expect them to revert or selloff meaningfully at year-end or in early January.

 

The Materials Sector is up +10% in just one month. 

The Industrials Sector is up over +13% in the past month.

The Transportation Sector is up almost +18% in a month.