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“When the facts change, I change my mind. What do you do, sir?” ~ Influential economist John Maynard Keynes

“You adapt, evolve, compete, or die.”~ Billionaire investor Paul Tudor Jones

Flexibility is a Super Power

Early in my career, I worked for the late great William O’Neil, a famous and successful growth investor. Though I did not work directly with O’Neil, I learned through stories and teachings that he credited much of his success with his ability to be flexible and change course like a “tree blowing in the wind.” O’Neil is not the only successful investor who preaches flexibility.

Billionaire Stanley Druckenmiller has been investing professionally for more than 30 years and, incredibly, has yet to record a losing year. Like O’Neil, Druckenmiller credits much of his success to his ability to change course. In a recent interview, Druckenmiller even joked that he called seven of the past three bear markets. However, his ability to change course and trade across asset classes allows him to be successful in the long run.

Markets are Cyclical

For much of 2024, investors have complained that participation is slim and has been isolated to a handful of mega-cap tech stocks within the “Magnificent 7” such as Meta Platforms (META), Nvidia (NVDA), and Alphabet (GOOGL). The argument is correct – while the Russell 2000 Index ETF (IWM) is only up a few percent, the mega-cap-tech-heavy Nasdaq 100 ETF (QQQ) is up about 25% year-to-date.

History tells us that the major indices will eventually course correct and the small-cap stocks will play catchup. However, after several false breakouts and a seemingly never-ending bifurcation in markets, how can investors be sure that market rotation may occur? Below are five signs that the much-awaited market rotation is ready to occur, including:

UVOL & Advancers

UVOL, or up volume, measures the percentage of volume concentrated in advancing stocks. As of the time of this writing on Thursday, 89% of NYSE stocks were advancing and up volume was a robust 80%.

Equal Weight ETFs Outperform

Intraday, the market cap-weighted QQQ is down nearly 2% while the Nasdaq 100 Equal Weight ETF (QQQE) is flat. Such a wide dispersion between equal-weight versus market cap-weighted indices is a major clue that the tide may finally be turning.

Small Caps

The Russell 200 Index ETF (IWM) is seeing its largest gain in months asvolume swells to more than 200% above the 50-day average.

Bottom Line

Thursday, the markets clearly showed that market rotation is finally here. Investors should be mindful that small caps and other beaten-down market areas will likely outperform in the coming months.

Infrastructure Stock Boom to Sweep America

A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.

The only question is “Will you get into the right stocks early when their growth potential is greatest?”

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NVIDIA Corporation (NVDA) : Free Stock Analysis Report

Invesco QQQ (QQQ): ETF Research Reports

iShares Russell 2000 ETF (IWM): ETF Research Reports

Alphabet Inc. (GOOGL) : Free Stock Analysis Report

Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE): ETF Research Reports

Meta Platforms, Inc. (META) : Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.