A Crucial Signal That the Global Economy May Be Slowing

NYSE: BAC | Bank of America Corp. News, Ratings, and Charts

BAC – Monday saw one of the largest rotations in years as money managers shifted from growth into value stocks. Was this a sign of renewed caution concerning the global economy? Continue reading for more details.

Monday saw one of the largest rotations in years as money managers shifted from growth into value stocks. Was this a sign of renewed caution concerning the global economy?  Or simply a prudent rebalancing, heading into the fourth quarter. 

Despite no apparent news numerous of this year’s best-performing stocks got hammered, many down over 10% or more on the day.  

The selling was focused in growth names, especially technology and specifically cloud-based companies. They were both relentless and seemingly insensitive to price or technical levels. 

This suggests that it was a mechanical rebalancing led by long/short hedge funds.  Seems like the lead managers that stayed on vacation through the balance of last week’s Labor Day came back Monday, looked at their sheets and said, “Whoa, we better rebalance.” 

That meant names like Coupa Software (COUP), Service Now (NOW)   Trade Desk (TTD)  Twilio (TWLO) and Okta (OKTA)  which had all been up by 50% or more were hammered, while buying beaten-down banks and cyclicals such as Bank America (BAC) and Caterpillar (CAT) enjoyed their best day in weeks. 

The result was after months of growth (black line) outperforming value (red line) by as much as 15 percentage points for the year to date, the gap was narrowed by nearly 5% in a single day.  

FTA Large cap trust

As you can see below, the extent of the third type of relative performance or rotation from one sector to another is fairly rare. 

us value growth price change

According to an article in ZeroHedge, there was chatter is this is forced derisking from momo-tilted funds, faced the equity equivalent of a Value at Risk or VAR shock as momentum, has outperformed so dramatically that they need to be rescaled to risk exposure limits.

The question now is was this simply a prudent rebalancing and ultimately a healthy broadening of the market?  Or, a case of losing one of the last remaining leadership groups. 

The major indices have been at near all-time highs, despite what’s been a rolling bear market in many sectors such as energy, financials, materials, and transportation. 

The first sign that it’s the former would be seeing that growth stocks find some support and price stabilization.  We are already noticing that some names like ZScaler (ZS) have already rebounded and most of the cyclicals like Deere (DE) are adding to yesterday’s gains. 

This tells me yesterday’s rotation was simply a prudent rebalance of portfolio allocation rather than a shot across the bearish bow.  Baring some jarring tariff or other macro news, this sets the market up for a solid run to new highs heading into the end of 2019. 

 


BAC shares were trading at $29.24 per share on Tuesday afternoon, up $0.61 (+2.13%). Year-to-date, BAC has gained 20.71%, versus a 20.10% rise in the benchmark S&P 500 index during the same period.


About the Author: Option Sensei


Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for TheStreet.com, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
BACGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Bull Market Til Proven Otherwise

The phrase that paid for investors in 2025 was “Bull market til proven otherwise” Steve Reitmeister explains why in his latest market update and preview of top stock picks.

Investor Alert: Mission Accomplished?

The S&P 500 (SPY) has broken out above the 200 day moving average. Does that mean that bear market fears are now over? And should investors be riding the bull to new heights? Read on for Steve Reitmeister’s answer...

Stock Market Update: It’s Complicated!

The S&P 500 (SPY) may have bounced 17% from recent lows, but the outlook for stocks from here is...in a word...COMPLICATED. Read on to get Steve Reitmeister full market outlook and trading plan for this complicated market environment.

Becoming More Bullish on Stocks, But...

Stocks are on a roll with the S&P 500 (SPY) up more than 10% from the recent lows. Before you start getting too giddy, you should read this updated market outlook and trading plan Steve Reitmeister.

Stock Market Held Hostage

Uncertainty is the term most often applied to this stock market. Uncertainty over tariffs. Uncertainty of whether the S&P 500 (SPY) will fall into bear territory. Uncertainty over what happens next. Steve Reitmeister dives into the uncertainty to make sense of the market in this week’s commentary...

Read More Stories

More Bank of America Corp. (BAC) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All BAC News