Europe's Stoxx 600 closed at a 52-week high on Friday. Investors rotated out of technology stocks. Those same investors have no idea what the Stoxx 600 measures. They just know the number went up.
The rotation happened because everyone decided tech was overvalued at exactly the same time. What are the odds. Thousands of fund managers woke up Friday morning and thought, you know what, I should buy European industrials instead of Nvidia. Completely organic. No herd behavior here.
Asia-Pacific markets went up first. Then Europe followed. This is called leadership. When one market goes up and another market goes up after it, that's a trend. When both markets go down, that's contagion. The words change but the charts look identical.
Global stock markets closed higher. All of them. Every single one that mattered. The journalist writing this headline got to use the word "global" which makes it sound important. Markets in 47 countries moved in the same direction and we're supposed to believe each one had its own unique fundamental reason.
Retail traders saw the headline and immediately checked their portfolios. They own three tech stocks and a meme coin. They did not participate in the rotation. They missed the Stoxx 600 rally entirely. Most of them think Stoxx 600 is a semiconductor company.
The 52-week high means the index is now worth more than it was at any point in the last year. This is mathematics. The previous 52-week high was set last week. Before that, the week before. The index has been setting 52-week highs every Friday for a month but this one made the headline because the journalist had a slow news day.
Monday the rotation will reverse and everyone will rotate back into tech stocks, which by then will have rotated into value stocks, which will have rotated into cash.
Photo by Christian Lue on Unsplash
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