Roll out the banners and pop the champagne. Actually, let’s not do that yet – this party is only just getting started. Both the Dow Jones Industrial Average and S&P 500 are back in record territory, and total market value has now increased $7.6 trillion since inauguration day (using the Russell 3000).

And guess what? So much more potential remains.

Market breadth has been progressively improving for more than a week, and yesterday the advancers and up volume were significantly better. However, there were still more 52-week lows than highs, which underscores the fact that bad news is still being greeted harshly.

While the headlines will focus on the record highs, I love the fact that buyers seem focused on oversold stocks. In fact, the big tech names didn’t lead yesterday’s rally – instead it was a bunch of battered down household names.

Jockeying for First

Yesterday’s record-setting session had several narratives, including which sector would enjoy the best day. The jockeying lasted into the closing bell when consumer staples pulled ahead with a 1.3% gain. Keep in mind, this sector has been the worst performer of 2018, but it was lifted by some of the biggest individual losers in the group. Value investors are thinking the worst is built into these stocks while technicians are drawn to some of the charts.

The only other sector that’s down in 2018 is the materials, which had a good session yesterday. I still think there is a lot of value here and recommend several materials stocks in my newsletters. At some point, I wouldn’t be surprised to see that sector outperform over a longer stretch of time.

Technology stocks also popped nicely, but the names you might expect to be the best percentage gainers weren’t the influencers. That’s not to say investors didn’t buy Facebook (FB), Microsoft (MSFT) and others, but software and computer chips names enjoyed the biggest upside.

I love that investors are looking for value, but here’s the problem with bottom fishing: The stocks you’re buying may be down because the value proposition has been hit, usually by a string of management underperformance marked by a loss in market share, lack of pricing power, contracting margins and poor execution against Wall Street expectations.

Conversely, if you are buying a beaten-down stock on negative speculation, you have a greater chance of making big money in a shorter period. For example, dozens of stocks were hammered last year on news that Amazon (AMZN) was getting into their businesses but many turned around big time in 2018. Think Etsy (ETSY), which is up more than 135%; Wayfair (W), which has rallied 70%; and Stitch Fix (SFIX), which has climbed 60%. (We just booked big profits in SFIX in my Smart Investing service.)

Ready to Profit from the Game of Catch Up

With the market again at record highs, it’s pretty clear that the media misspoke when it said that the market was afraid of tariffs. The correct wording should have been something like “the economic elite fret that tariffs will hurt margins and send stocks lower.” This is just one reason the world’s biggest hedge fund managers have missed this rally big time.

In July, global equity allocation for the 244 fund managers of $742 billion hit its lowest level since November 2016. As the summer moved along, there was a greater shift into U.S. equities, but the fact of the matter is that the “smartest folks in the world,” who get paid big money to be in rallies, have mostly missed it.

These fund managers are going to have to play catch up and quickly. That means we should see a lot of money flowing into the market in the coming months, so you want to be invested. Those of us who are in the right stocks stand to benefit from that shift.