I’m a cinephile, so movie allusions tend to pop into my head. As I write this, I’m thinking of the sword-and-sandal epic about ancient Rome called Quo Vadis (1951). The title is a Latin term that means: Where are we going? In my mid-year market review, I will address the same question.

We’ve reached the mid-point of 2021 and so far, the bear is still in hibernation. Those following the advice of the pessimists have incurred a big opportunity cost.

However, although the market has continued to go up year to date, money has shifted into different sectors and asset classes.

On Wednesday, the last day of Q2, the Dow Jones Industrial Average jumped 210.22 points (+0.61%), the S&P 500 rose 5.70 points (+0.13%), and the tech-oriented NASDAQ slipped 24.38 points (-0.17%). The S&P 500 gained for a fifth consecutive session to end the day at yet another all-time closing high. In pre-market futures trading Thursday, stocks were flat.

For the first six months of the year, the Dow gained 12.7%, the S&P 500 gained 14.4%, and the NASDAQ gained 12.5%. The S&P 500 racked up its second-best first-half performance since 1998, which was during the height of the dot.com bubble.

According to the Select Sector SPDR exchange-traded fund benchmarks for the 11 S&P 500 sectors, the top three performing sectors in Q2 were real estate (13%), technology (11.4%), and energy (10.9%).

The worst three performers were industrials (4.3%), consumer staples (3.1%), and utilities (-0.5%). The latter was the only sector to turn in a negative performance in Q2, but year to date, all 11 sectors are in the green.

For the entire second half, the top three performers were energy (45.1%), financials (25.5%), and real estate (23.3%). The three worst were consumer discretionary (11.4%), consumer staples (5.0%), and utilities (2.4%).

The road from here…

For the first half of 2021, two trends emerged and they’ll likely maintain momentum: a rotation toward value and small-cap stocks. This twin dynamic should continue for the rest of the year, as investors seek to leverage the growing economy but become leery about overvalued large-cap growth stocks.

The iShares S&P 500 Value ETF (IVE) has generated a year-to-date daily total return of 15.6%, compared to 14.3% for the iShares S&P 500 Growth ETF (IVW), as of market close June 30. I expect this market rotation toward value stocks to gain traction.

The small-cap Russell 2000 index has gained 17% year to date. Small-cap stocks are generally defined as having market valuations of between $300 million and $2 billion. Small caps thrive when economic expansion heats up. They operate much leaner than their larger counterparts and it’s easier for them to move the needle on growth.

The rise of smaller equities strengthens the bullish case, by conveying greater breadth to the rally and reflecting optimism over the economy.

ADP reported Wednesday that private payrolls increased by 692,000 in June for a sixth consecutive monthly rise. The consensus had called for an increase of 600,000.

Amid an accelerating economic recovery in the latter half of 2021, the sectors that should outperform include energy and financials. I also like commodities, such as precious metals and essential raw materials.

Don’t ignore overseas stocks. Year to date, the iShares MSCI EAFE ETF (EFA) has gained 8.1%. This benchmark fund provides exposure to a broad range of companies in Europe, Australia, Asia, and the Far East (excluding the U.S. and Canada).

The EFA’s strong performance during the first half of 2021 is a reminder that the global economic recovery is expected to strengthen for the rest of the year, especially the Asia Pacific region (see chart).

As the global recovery gains traction, the Asia Pacific region is home to inherently strong stocks that are value plays. That’s especially true of construction-related companies with large public works contracts.

The World Bank on June 29 raised its forecast of China’s economic growth this year to 8.5% from 8.1%. Manufacturing and consumer activities in the world’s second-largest economy already are back to pre-pandemic levels.

Make risk work FOR you…

The markets aren’t risk free right now; bullishness should not be synonymous with complacency. Investors are gravitating toward value, in part because the overall market has reached overbought levels.

Watch This Video: How to Hedge Against Mounting Risk

Case in point: The red-hot NASDAQ currently hovers at a record high. Some technology stocks are great buys now. But many others aren’t. In fact, there’s a slew of much-hyped “story stocks” in the tech sector that are overbought and poised for a tumble.

My colleague Jim Pearce, chief investment strategist of Mayhem Trader, is convinced that we’re witnessing another tech stock bubble, reminiscent of 2000.

Jim is an expert at making money from market excesses. After pinpointing the most vulnerable stocks in the tech sector, he devised a simple way to profitably leverage their imminent decline. To learn about Jim’s next “mayhem” trade, click here.

John Persinos is the editorial director of Investing Daily. Send questions and comments to: mailbag@investingdaily.com. To subscribe to his video channel, follow this link.