Equal Opportunity

I pity the passive investor in this market. Stuck with a single focus on "buying the market", they have never been given the chance to make anything but a single bet. As shown below, stocks have rarely, if ever, been this uncorrelated with each other. Just when stock correlations have plummeted, they are missing out on an investing lifetime opportunity by owning an index dominated by a group of tech stocks that are suddenly underperforming. Stock picking as a strategy has returned with a vengeance, and nobody's talking about it.

S&P 500 Correlation

You can also see it in the performance of the Equal Weighted Index versus the market index. By that measure, the market just made an all-time high yesterday. After a false start early in the year, this measure of average stock performance was swamped by the untiary AI trade. Now that the sober second thought process has descended on tech, the rest of the market has regained its mojo. The baton has been passed, and the bull market is surviving the tech-wreck just fine, thank you very much. I believe we are just seeing the beginning of a longer-term trend of a more heterogeneous market phase.

Equal-Weighted vs Index Relative Performance

This stands to reason, given that a bull market often shifts to fit the evolving narrative. A narrow market isn't healthy, but the recent choppy market behaviour is ultimately setting us up for a new bull phase. The fact that one part of the market got completely over its skis doesn't mean that the market's run out of steam. On the contrary, it's giving new life to sectors that have flown under the radar. As I pointed out last week, Financials have been stellar performers, as easy monetary conditions, a stable credit environment, and robust capital markets create a Goldilocks environment for investors in this sector.

But other non-tech themes have performed well, despite losing the headline battle. Stories about fading stars like Microsoft, Nvidia, and Tesla, and the SpaceX IPO collapse, have been quietly buried by Wall Street, embarrassed by its hubristic cheerleading. Where are the customers' yachts, indeed!

I did a quick scan of the past three months' performance - a period of inflection away from the momentum trade. Outside of the tech space, there was an interesting cluster of performance from Health Care, Biotech and what are known as 'Aging' stock plays - assisted living, etc. Following Baby Boomers' consumption behaviours over the past 50 years has been a very profitable way to play the market. Housing plays in the Eighties, Housewares and electronics in the Nineties, and Travel and Wealth Management in the 2010s.

Armed with wealth and longevity increases never before seen, demand for old-age-related services is booming. If you are blessed with good health, it's travel and entertainment. If not, it's senior care and health-related items. As a reflection of the 'K' shaped economy, consumption patterns have shifted away from things - autos and housing - to luxury experiences or expensive retirements. The chart of Extendicare - Canada's premier retirement home company, is a case in point.

Extendicare

And as for travel-related, cruising, hotels and airlines.

Royal Caribbean

Marriott International

Delta Airlines

Despite the tech sell-off, this week might mark the bottom, as sentiment has turned extremely bearish. If the Fed decides not to change policy rates this week, a relief rally could occur. However, the business potential for AI is not yet fully understood, with any measurable ROIC still several years away. Semiconductors and hyperscalers are transitioning from capital providers to capital consumers. Meanwhile, the global economy is expected to continue at a slow but steady rate, unless disrupted by new geopolitical issues. No guarantees on that front, though.

Keep watching for new themes to develop and for investible opportunities to emerge. Below the surface, this market offers many opportunities for the active investor. It's a market of stocks, not a stock market.

Now that's what I call equal opportunity.

Risk Model: 4/5 - Risk On

The only thing keeping this market back is AAII sentiment. But we know that data is skewed towards aging baby boomers who play stocks by the 'home gamer' strategy. We all missed the AI boom and, after the first tech bubble burst, we don't want to get fooled again. I'm not seeing signs of a permanent top for stocks, especially now that earnings are continuing their spectacular surge. Lots of constructive chart patterns are shaping up during this consolidation phase.

The Magnificent Seven may be a spent force, but there are still plenty of fish in the sea. Speaking of SEA, here's a way to play the rising cost of global shipping. Despite tariffs and Oil prices, this sector is doing quite well. Supply shortages for all modes of transport and resilient demand make for great fundamentals.

Shipping Cargo ETF

And - Is Air Canada ready for take-off? I've shown this before, but it reminds me of an old adage - the bigger the base, the stronger the case!

Air Canada