To everything turn, turn, turn
There is a season turn, turn, turn
And a time to every purpose under heaven…

Those lyrics are from The Byrds’ hit 1965 song Turn! Turn! Turn! Adapted from Ecclesiastes 3:1-8, the song is about the inevitability of historical cycles, and why people should calmly adapt to change rather than fight it.

The tune popped into my head as I started to write this article about sector rotation. Now’s the time to adapt to the stock market’s great turning point.

Stock market sector rotation refers to when investors shift their investments among different sectors based on changes in economic conditions. This rotation occurs as sectors move in and out of favor depending on factors such as interest rates and business cycles.

During the first quarter of 2024, we see that the Federal Reserve is pivoting to a more accommodative stance; interest rates are poised to fall; inflation is declining; economic growth is accelerating; and corporate earnings are rebounding.

Accordingly, sectoral dynamics currently suggest a widening spectrum of leadership. Looking ahead, I advise diversifying equity holdings into sectors of the market that have lagged behind in the past year.

I anticipate a broadening of equity market leadership throughout 2024, with value-oriented investments and small- to mid-cap stocks catching up. Industrials, real estate, utilities, and health care are appealing sector choices now.

Following their prolonged rally, technology stocks currently face pressure as investors worry about the sector’s high valuations. Exacerbating the headwind for tech stocks were reports Tuesday about Apple (NSDQ: AAPL) experiencing a 24% decline in iPhone sales in China during the initial six weeks of 2024.

China has become a trouble spot. Across the globe, Asian markets have been racking up a mixed performance, with China’s National People’s Congress (NPC) gathering this week in the spotlight.

China reaffirmed its growth target for this year at 5%, mirroring 2023, and revealed intentions to operate with a budget deficit of approximately 3% of gross domestic product. The absence of a plan to substantially increase the Chinese budget deficit suggests limited prospects for meaningful fiscal stimulus to bolster sagging economic activity.

China is the global growth engine. As such, the country’s economic woes pose a risk for equity markets worldwide. Beijing’s ambitious growth target for this year should be viewed as an arbitrary number delivered by a leadership that’s increasingly known for its opacity.

On the corporate earnings front, retail bellwether Target (NYSE: TGT) witnessed a surge of 12.02% in its stock price Tuesday following better-than-anticipated earnings results, with earnings per share surpassing expectations by 23%, propelled by robust profit-margin expansion.

Target’s stellar operating results underscored a generally positive earnings season for S&P 500 companies. For Q4 2023, the blended year-over-year earnings growth rate for the S&P 500 is 4.0%, according to research firm FactSet.

In another bullish trend, Treasury yields have been moving lower after a worrisome spike, with the benchmark 10-year yield currently hovering at 4.1% (see chart).

In macroeconomic news, the ISM services PMI for February on Tuesday came in at 52.6, a slight decline from the preceding month’s reading of 53.4. This indicates that economic growth in the U.S. services sector persisted in February, marking the 14th consecutive month of expansion, albeit at a reduced pace compared to January.

The upshot: Reasonably priced companies in cyclical sectors are positioned to take off this year. You should increase your exposure to these erstwhile laggards, as they turn into leaders.

Wednesday’s good news…

The U.S. Bureau of Labor Statistics on Wednesday released its Job Openings and Labor Turnover Survey (JOLTS), which showed a slight fall in job vacancies, from 8.88 million in December to 8.86 million in January. The consensus forecast had called for a slightly larger fall to 8.85 million.

The January JOLTS report is not a gamechanger for expected monetary policy. The same can be said of the ADP employment report issued on the same day.

Private sector employment in the U.S. rose by 140,000 in February and annual pay was up 5.1% year-over-year, as reported Wednesday by Automatic Data Processing (ADP). This ADP reading followed the 111,000 increase posted in January and came in below the consensus expectation of 150,000. The labor market is vibrant, but not too hot.

Federal Reserve Chair Jerome Powell said Wednesday the Fed won’t begin cutting its key interest rate “until it has gained greater confidence that inflation is moving sustainably toward” its 2% target, noting the move will likely occur “at some point this year.”

Powell’s comments, delivered before the House Financial Services Committee, echo those he made at the Fed’s last meeting in late January. Powell’s remarks today aren’t a gamechanger for policy, either.

Investors took heart from these developments and the main U.S. stock market indices closed higher Wednesday as follows:

• DJIA: +0.20%
• S&P 500: +0.51%
• NASDAQ: +0.58%
• Russell 2000: +0.70%

Wall Street was especially relieved by Powell’s assertion on Capitol Hill that yes, rate cuts are in cards this year despite strong economic growth.

Read This Story: Crypto Bulls Unleashed: SEC Approval of Bitcoin ETFs Sparks Frenzy

As you pursue greater diversification, don’t ignore cryptocurrency. The bull market in Bitcoin (BTC) and other crypto assets shows no signs of abating.

The gap between traditional and digital markets is narrowing, as Bitcoin exchange-traded funds (ETFs) report massive inflows of new capital.

It’s clear that every portfolio should have exposure to crypto. However, you need to be informed. Pick the right crypto asset and you can reap huge gains in a short amount of time. Pick the wrong one, and you can lose your shirt.

The good news is, in our coverage of the crypto market, we separate fact from myth, the wheat from the chaff. Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

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