When stocks are in a healthy environment, you tend to see High Beta stocks outperforming their Low Volatility counterparts. It's in the weaker environments where High Beta historically underperforms.
Look at this chart above. Consumer Discretionary had been underperforming for a long time, until recently. Consumer Discretionary is the 2nd largest component of the High Beta Index, coming in at 14%, compared to the just 6% weighting in the Low Volatility Index.
Meanwhile, Technology is by far the largest component in the High Beta Index, with a 52% weighting. Notice how Tech only has an 8% weighting in the Low Volatility Index.
These two "Risk-On" sectors have been underperforming. So you can see how the High Beta / Low Volatility Ratio hasn't even broken out above its prior cycle's highs.
But it just closed at new 20-week highs yesterday. That's a good start.
Sector Rotation Is The Lifeblood of a Bull Market. You're seeing it.
If you're looking for a catalyst to take this bull market deep into 2025, then look no further than this rotation into High Beta stocks.
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JC
