March has been a month of rotation in the stock market rally, with Energy leading the charge. As of Tuesday’s close, Energy (XLE) had gained over 8%, making it the top performer for the month. Other sectors such as Materials (XLB), Utilities (XLU), Communications Services (XLC), and Financials (XLF) also outperformed the S&P 500 (^GSPC).
This shift in performance has put Financials and Energy’s year-to-date performance above that of the benchmark index, signaling a broadening of the market rally beyond just Tech and Communication Services companies. According to Citi US equity strategist Scott Chronert, this rotation reflects confidence in economic growth opportunities and a potential soft landing.
However, the future of this rotation depends on the economic outlook. If the outlook remains positive or improves, the rotation among sectors is expected to continue. But if there is a downturn, the shift could move back to more defensive areas, as noted by Charles Schwab chief investment strategist Liz Ann Sonders.
Overall, the market is experiencing a “stealthy” rotation among sectors, with potential for further changes depending on economic conditions. Investors will need to stay vigilant and adapt their strategies accordingly to navigate the evolving market landscape.
