Stock investors flipped the script when they passed the year's halfway point – bad became good and good became bad.
The reversal has held across sectors and individual stocks since the end of June. First-half laggards have led and leaders have lagged.
The market's transformation can broadly be characterized as a rotation out of defensive pockets and into riskier ones.
In the first half of the year, "cheap stocks were getting cheaper, and expensive stocks got more expensive. The common denominator was interest rates," said Patrick Horan, a portfolio manager with Agilith Capital.
Declining bond yields earlier this year sustained demand for dividend-heavy U.S. sectors such as utilities and telecom. Shares of precious-metals companies also did well. But the midpoint saw them relinquish leadership to the dogs of the first half, including financials and technology.
The trend is no less apparent in Canada, where gold and silver miners had a great first-half run and have since stumbled. The single best-performing stock in the S&P/TSX composite index in the first half – First Majestic Silver Corp., which nearly quadrupled in value – has since dropped all the way to dead last with a 40-per-cent slide.
It's all part of the same rotation, which has coincided with a global reassessment of the ultralow-interest-rate regime in place since the financial crisis.
"We believe the environment has changed," Mr. Horan said. If so, rate-sensitive sectors and bond proxies could continue to be punished, to the potential benefit of cyclical stocks.
The year started with investors assuming a largely defensive stance in reaction to a correction that began in earnest in the first trading sessions of 2016.
And as has so often been the case in recent years, the course of normalization of interest rates was interrupted.
Expectations for the U.S. Federal Reserve Board to raise interest rates diminished, and long-term bond yields withered.
And again, investors piled into stocks serving as substitutes for bonds. With fixed-income securities offering next to nothing, or less, in the way of yield, dividend stocks have served to replace that lost income.
As a result, those sectors that offer generous dividends have become crowded.
"The valuations of the safe, defensive and high-yield sectors have at times been very, very expensive," said Bryan Pilsworth, president and portfolio manager at Foyston Gordon & Payne.
Defensive stocks, which offer some shelter from macroeconomic cycles, and dividend stocks are not exactly synonymous, but there is plenty of overlap between the two.
Brexit reinforced their popularity. When Britain voted in late June to leave the European Union, it sent investors again scrambling for havens.
The demand for yield and safety made utilities and telecoms the best performing U.S. sectors in the six months ending in June, with each advancing by more than 20 per cent.
Same story in Canada, where rate-sensitive sectors – utilities, telecoms and real estate – were the only non-resource sectors to beat the S&P/TSX composite index over the same time.
As much of the fixed-income universe sank into the unprecedented realm of negative interest rates, the yield on the benchmark U.S. 10-year Treasury bond sunk to an all-time low of 1.32 per cent in the days after the Brexit vote.
In pushing yields to levels typically seen during a severe recession, the market seemed to arrive at a dramatic conclusion regarding rates. People thought, "they're going to stay low forever," Mr. Horan said.
He called that the "final capitulation" on rates – the point at which the pendulum finally began to swing the other way.
After that, yields began to rise, the market began to bank on a U.S. rate increase in December, and the world began to question the wisdom of extraordinary monetary stimulus in perpetuity.
And with that, the fortunes of the stock market started to reverse.
Rate-sensitive sectors went from first to worst, with utilities and telecom sectors of the S&P 500 both declining by about 10 per cent since the end of June.
The first-half losers, meanwhile, have claimed leadership, as technology and financial stocks have risen by 12 per cent and 5 per cent, respectively, since the halfway point.
Those changes hint at the kind of unwinding that might result should the normalization of interest rates finally be under way, Mr. Horan said.
"When the herd turns and leaves, you can get traumatic drawdowns."