Seems like the stock market is not the only thing experiencing a volatility storm lately. Last week my friends, family and I were in Park City, Utah, and a massive 2-foot snow storm hit that made for some amazing glade skiing. Sure enough on the way back home, a massive nor’easter hit that closed many of the major East Coast airports. It’s been a cold, snowy winter here in upstate New York and with just one week until March, it’s hard to believe we’ll begin looking forward to the spring thaw. I’m also seeing early signs that the market’s volatility storm — despite all the global macro and AI capex fears — may be approaching a thaw of its own. As a money manager who focuses on active portfolio management for informed investors (like CNBC Pro readers), even I am starting to get a case of motion sickness from all the back and forth price volatility that has gone nowhere! The Nasdaq 100 is trading at the same price as Oct. 2, 2025! There is so much talk of the great rotation out of growth/technology and into value and defensive areas, yet the Nasdaq 100 is only 4.5% off its all-time highs and still 51% from its 2025 lows. Context is key to prevent those costly emotions driving portfolio decisions. Looking at the Vanguard Growth (VUG) / Vanguard Value (VTV) ratio going back about 20 years we see a clear uptrend into Covid. After that the volatility comes in, but a trained eye will notice a pivot/decision zone in the chart at 2.30-2.10. We’re testing this pivot zone for the fifth time. I’m wondering if it will again act as support setting up another period of growth outperformance to value. Another ratio we need to consider is Consumer Discretionary (XLY) / Consumer Staples (XLP) ratio. This chart goes back only 10 years (compared with the 20-year chart above). There is a similar pivot zone and uptrend line (red dashed) just below us at around 1.25-1.20. If this support line holds, it sets up a period of consumer discretionary outperformance to consumer staples. Included in those charts are the top 10 holdings, and if you scroll through each, you’ll notice many of the top XLP holdings have rallied sharply, but it’s nuanced. Besides the top two holdings, Walmart and Costco , which I consider to be more discretionary than staples, it looks like panic buying in the name of fear, not sustainable orderly buying. Do the same exercise in the consumer discretionary names, and with exception of Amazon — which has been lagging along with the “Magnificent Seven” — I see many charts that are well-supported, basing or breaking out. Check out Home Depot after earnings that beat top- and bottom-line expectations with better-than-expected gross margins and reiterated 2026 guidance. There is a constructive long-term consolidation pattern on Home Depot with resistance around $420, last trade of $388. Below Home Depot in terms of market cap is McDonald’s and TJX Cos . Both are breaking out, and then Lowe’s , which is set to report earnings Wednesday. Turning to South American consumer discretionary is a company we’ve covered in this column in the past, MercadoLibre . It reports Tuesday after the bell. We currently hold MercadoLibre and the weakness makes me nervous with the stock below $1,900. We’ll see how the report goes. Let’s add the U.S. 10-Year Treasury Yield overlay to the XLY/XLP ratio. You will notice a loose inverse correlation between two, which makes sense as declining interest rates should boost consumer spending and the market’s preference for the possible earnings growth out of growth/tech rather than the dividend yield of the slow-growing consumer staples. Forecasting the fixed income (yields) market is a tough game, not only to get the direction right, but to understand why yields are moving in the direction they are. If yields move lower out of pure risk aversion and fear, then XLY/XLP probably breaks down through the pivot zone as fearful consumer staples buying continues. Or, what if the geopolitical turmoil and AI capex fears calm and as a result the stock index volatility storm thaws? The growth trade will regain its footing and the deflationary forces exerted by technology with improving margins and operating efficiencies will exert downward pressure on yields allowing the Federal Reserve to drop rates further — a risk-on scenario with stock indexes at all-time highs. We’re looking at a few homebuilders in the consumer discretionary space like Pultegroup , which look set to break higher, certainly helped by lower U.S. yields. Finally, Nvidia’s earnings on Wednesday could be the catalyst to get this rotation back toward growth kick-started. — Todd Gordon, Founder of Inside Edge Capital We offer active portfolio management and regular subscriber updates like the idea presented above here . DISCLOSURES: Gordon owns WMT, PHM, MCD, TJX, MCD, MELI personally and for clients in his wealth management company Inside Edge Capital. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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Thursday, May 14
