Halfway through the third quarter, the reopening theme is catching on again

Stock rotation: anti-lockdown, anti-low yields.  

We are halfway through the third quarter, with the S&P 500 up a respectable 3.8% in the last six weeks.

Even while a lot of traders are on the beach, there are two big narratives in place driving the action: the trajectory of the delta variant and interest rates.

The market has voted to believe that the variant will not derail the recovery (some traders have gone further and are insisting there are signs the delta variant is "peaking"), and that interest rates have bottomed and are moving up.  

As a result, reopening oriented sectors like Industrials and Materials have been outperforming this quarter, aided by the infrastructure bill:

Industrials/Materials: big momentum
(QTD)
Nucor up 28%
Dover    up 15%
Martin Marietta   up 11%
Vulcan Materials  up 11%
Textron               up 8%
Deere                 up 9%

Rates have been rising since the strong July jobs report, and so have banks, as well as a smattering of other financials like Nasdaq:

Financials: big momentum
(QTD)
Morgan Stanley   up 13%
Goldman Sachs    up 9%
Wells Fargo          up 11%
Nasdaq                 up 8%

Consumer stocks are split. A small group of super-sellers (Target, Costco, Walmart) are outperforming:

Consumer super-sellers: big momentum
(QTD)
Costco                  up 12%
Walmart                up 12%
Target                   up 8%

Because households are flush with cash from savings and stimulus, consumer discretionary remains strong as consumers continue to fix up their homes, go out to restaurants, and buy cosmetics:

Consumer discretionary: consumer has cash
(QTD)
Chipotle                up 21%
Domino's Pizza     up 11%
Sherwin-Williams  up 11%
Mohawk                up 9%
Ulta Beauty            up 7%

But food and other staple names are all down, as consumers are spending less on food at home.

Consumer:  downward momentum
(QTD)
Campbell Soup    down 6%
Clorox                  down 7%
Kraft Heinz            down 7%
Brown-Forman      down 8%
Constellation         down 9%

Tech is the wild card. Sensitive to higher rates, most tech names are performing in-line with the market, but mega-cap technology (FAANG) is continuing to outperform:

Technology: mixed
(QTD)
Alphabet    up 13%
Apple        up 8%
Microsoft   up 7%
Broadcom  up 1.5%
Paypal down 5%
Intel     down 4%
NVIDIA    down 1%

The bottom line:  higher rates are helping the markets look through the delta worries.

Still, August can still be a crapshoot, Chris Murphy, co-head of derivative strategy at Susquehanna, told me. "August can go two ways. It can grind higher on no volume. Or something surprising can happen and it could gap lower." 

Regardless, with the S&P up roughly 4% in the past six weeks, the "peak everything" story does not seem to be exhausted yet.  

"The reopening theme is again catching hold of the market," Murphy told me.

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