Reopening Trade Throws U.S. Indexes Most Out of Sync in Decades

(Bloomberg) -- The three main U.S. stock indexes are poised to close out one of the most disharmonious quarters in two decades.

The Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite Index have all moved in unison, up or down, in just 64% of sessions since the start of January. That’s the second-lowest ratio since 2001 and well below the quarterly average of 78% during that time.

The disjointed trading among the three major gauges comes as investors pivot away from tech stocks that soared during the pandemic to those set to benefit from reopenings.

“Definitely the break between the different indexes shows the rotation -- we’ve seen some head fakes, the whole market hasn’t gone one way or the other,” said Chris Gaffney, president of world markets at TIAA Bank. “There’s been different investment themes and different investors have had different views.”

That rotation is set to break the tech-heavy Nasdaq’s five-quarter streak of gains that were better than the Dow’s. Through trading on Wednesday, the Dow Average had gained more than 5% against the Nasdaq this quarter, the largest outperformance since the end of 2018.

But with a week of trading to go and 10-year Treasuries rallying, the reflation trade that has sent cyclicals soaring against tech remains vulnerable to a reversal.

“The reason this correlation is less is because as yields moved higher, that impacted tech, but the average stock was outperforming by a wide margin,” said Keith Lerner, chief market strategist at Truist Advisory Services. “It makes sense in some regard that because of how quickly the 10-year moved up you saw a sharp rotation from growth to value and that’s why this correlation probably moved much lower.”

To Gaffney that all means that it might be a while before the different indexes start dancing to the same tune again.

“Messiness is a great word for it, I think that’s going to continue -- choppy markets,” said Gaffney. “It’s just uncertainty over the recovery and investors looking for value, looking to put money where it’s cheap.”

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