The stock market may be too hot, but the outlook for the economy remains sunny. There are signs that the hottest sectors of the market may be starting to cool off a bit, while the coolest sectors are warming up. It's time for the laggards to be leaders for a while. In other words, Information Technology and Communication Services stocks might chill, while Energy, Financials, Industrials, and Materials have their day in the sun. SMidCaps tend to outperform LargeCaps when recession fears abate as they are now.
Meanwhile, the S&P 500 has been tracing an almost perfectly symmetrical U-shaped formation since it peaked at a record high on January 3, 2022 (chart). The downturn lasted 282 days and cut the index by 25.4% through October 12.