Market Cleansing

Since the start of the year, the S&P500 has lost $7.5Tn in market cap, or the equivalent of 2X Germany's GDP. The most affected sectors are the ones that were more extreme in valuations, particularly technology. On the other side of the spectrum, only the Energy sector has experienced gains YTD. It appears to be the only (investment) place to hide, alongside commodities. As it usually happens, these sectors have been out of favor for a long time and are massively under-owned in portfolios, with valuations that may look attractive from an absolute and relative basis. As we get closer to the next #fomc meeting, we are going to see if the market keeps rotating from a risk-on approach, with Tech at the forefront, to a more risk-off approach with more defensive names or inflation hedged sectors.

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