Correction Shows Bets on Growth Being Unwound as 2009 Winners Sell Off

(MoneyWatch)  Bespoke Investment Group notes in a blog post on the Seeking Alpha website that the stocks that are down the most since the market peaked on Jan. 19 are the ones that were up the most last year. The correlation is quite strong, with the 50 best performers of 2009 declining 9.5 percent through Friday and the 50 worst laggards off just 2.9 percent.

This could just be the dollars-and-cents equivalent of the law of gravity being enforced or, if you prefer a cynical explanation, Schadenfreude, but there is a fundamental explanation for the phenomenon. After betting big on an economic recovery, investors are taking some of their chips, blue or otherwise, off the table.

Six of the 10 biggest losers produce commodities, an endeavor more sensitive than almost any other to changes in economic output. Beginning with the worst performer, the six are: U.S. Steel, Cliffs Natural Resources, Massey Energy, Freeport McMoRan Copper & Gold, Alcoa and Titanium Metals. Their losses range from 17 to 32 percent. During 2009 they were all up 42 percent or more, with Freeport and Massey the standouts, each tripling in price. Three of the other early 2010 stinkers are technology stocks: Qualcomm, Motorola and Advanced Micro Devices. Technology companies, especially manufacturers of semiconductor chips and other tiny components, as these three are, also are among the purest plays on economic expansion. The other top 10 loser is Avery Dennison, a maker of pressure-sensitive materials, adhesives and other doodads.

It's possible that investors are rotating out of sectors like commodities and tech, which tend to shine in the blastoff phase after a recession, and into others that thrive during periods of less explosive but still healthy growth. One development, or lack of one, argues against that conclusion, however: The blastoff hasn't occurred, at least not enough to help the economy gain much altitude.

Raw gross domestic product numbers have been so-so and probably were aided greatly by the various fiscal stimulus programs and by inventory rebuilding - producing goods to restock shelves. Many key indicators of growth, such as rising home prices and credit expansion, have yet to be detected.

The market action lately suggests that investors are rotating out of hot stocks but haven't found any to rotate into. The correction seems to have a way to go.