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Buzz & Banter



Just a thought for my fellow columnists but most especially Tony who has espoused his thoughts on sector rotation with some frequency. We know that the massive liquidity in the system has provided an extraordinary boost for stocks - all stocks. How probable is the following?

If the 2H recovery doesn't materialize and those managers who have bought aggressively based on that outcome start to sell their stocks, what are the chances that, instead of selling everything outright and precipitating a 2002-like waterfall drop in the market, they simply sell their high-beta Nasdaq-type stocks and rotate - viciously - into defensives like healthcare, consumer staples, etc.? Since liquidity is so high, they could feel the same, aggregate, need to "be in stocks". The averages wouldn't get too bloodied but individual stocks could, perhaps resoundingly so.

Quite a few ways to play this, if the outcome is likely. Buy the defensives and short high beta cyclicals on a beta-adjusted dollar basis is one (balanced) way. Let's keep a collective eye on the various ETFs and sub-indices that represent this possible rotation to see if it plays out.

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No positions in stocks mentioned.

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