Traders operate on the floor of the New York Stock Exchange (NYSE) on July 21, 2021.

Brendan McDermid | Reuters

It’s the end of August, so like so many of us, the market is supposed to be on vacation.

But when you consider that nobody has really kept an eye on the month since the beginning of the pandemic – how was the Christmas party last winter, your birthday party or the company summer excursion? – Nor should we assume that the S&P 500 or any other index is keeping a close eye on the calendar.

So what has the market been up to lately? The answer from 20,000 feet would be “grind higher”. As of August 20, the S&P was up 18.3% year-to-date, 6.8% over the past three months and 2.7% last month.

Underneath this calm and upward sloping surface, however, there is some serious sector and topic rotation. The following table illustrates some of these dramatic changes. Energy and financial services were the favorites of the market earlier this year, but the spigot closed abruptly in May. Oil and gas stocks are roughly tied to the overall market and lost almost 12% in the last three months (as of August 20). The financial sector also lost momentum when interest rate hikes stalled and reversed in March.

Rotating in and out of favor

In mid-May, the last decade’s multi-year winners, technology and communications services, came back into fashion and made an impressive comeback to position both groups ahead of the market. This trade, too, began to tire at the end of July, leaving the major digital players in the balance for the past month.

The market is only up 2% in the last month and a half, or what we can easily lose in a day. What worked is a mix of sectors, mid caps, and styles.

Of the 25 top-performing stocks in the S&P 500 for the past six weeks, which ended August 20, only three had a market value of over $ 200 billion. The value of the entire cohort could fit into Microsoft’s $ 2.3 trillion capitalization.

The most heavily represented sector is healthcare, which was an underperformer in the first half of the year, but outperformed technology and slightly outperformed the index. Both the spike in Covid cases and a feeling that this government will not enforce drug price restrictions have helped names like Moderna, Pfizer, Lilly and Danaher, the biggest companies on the list.

Beyond healthcare, there is a wide range of industries within the best stocks of recent times that have no obvious resemblance other than their name ending in a consonant. (Nucor, Kroger, Paycom, AMD, Chubb, Under Armor for example).

Don’t follow the trends

However, investors should keep in mind that this year, as shown below, the market has changed loyalty and has sporadically punished one-dimensional, unconditional loyalty to any theme or style, be it reopening, re-opening, small cap, mid cap, or mega cap. While large-cap growth, small-cap, and value each saw around 16% to 18% each in 2021, they achieved those results by trading places over the course of the year.

How should investors position themselves in a meandering market without tracking the performance of a hot group that could be near their peak in the near future without getting whiplash?

Avoid getting too involved in one side of the highly debated growth or value trade. Having both Facebook and American Express is not a sign of weakness.

Own companies that are going to thrive in the next two to three years due to their dominant position in a growing market, such as United Healthcare and Google, provided you agree with their valuation for who we are.

Since inflation is a legitimate concern, even if it’s temporary, focus on companies with some pricing power, either subscription models (Netflix and Salesforce.com); those whose sales are a percentage of customer sales (Visa and PayPal); or markets so strong that they have price flexibility (Sherwin-Williams and Facebook).

First of all, remember that the market will recognize that it is autumn. It will stop meandering and will likely choose a more determined course of action. This tour will probably not take much longer.

Karen Firestone is the chairman, CEO and co-founder of Aureus Asset Management, an investment firm dedicated to contemporary wealth management for families, individuals and institutions.