Doug Kass: Welcome to the New Stock Pickers' Market of 2024-2025

The vicious and extreme market rotation on Thursday may mark a seminal point of the bull market that began in October, 2022. It appears possible that the demand for the "Magnificent 7" tech star stocks has finally been ... satisfied. 

In Thursday's premarket I made an aggressive (and lucky) call after the "cool" inflation print that it could unleash selling:

John Bogle once said, "Don't look for the needle in the haystack. Just buy the haystack!"

That approach and dictum have not worked in the last 20 months; what has worked has been a small handful of large tech stocks.

This could change now — or at the least the odds of it changing has likely increased.

The old adage that the we are in a market of stocks may finally take hold - as on Thursday a vicious, extreme and unprecedented inflection point in market rotation occurred:

I don't know (nor does anyone else know) whether the love affair with the Magnificent 7 names has ended and whether demand has finally been sated for those anointed stocks. Nor can we possibly know — with certainty — whether the market's advance will broaden out.

Today you will hear a lot of certain voices — from "talking heads" who are loaded with technology stocks.

My voice is less certain (as I am always in doubt) than most. Grandma Koufax taught me that I should always be fearful of the Cossacks.

I don't deal in narratives — with a calculator in hand and a contrarian streak — I deal in probabilities.

I would suggest that the probabilities now favor that the "league leading" Mag7 may have made a significant top and the rest of the market might have problems with a sustained rally. That is to say, the odds favoring an important top in Mag7 might be hand. I have spent months describing how the rubber band of tech has been stretched. Furthermore, given the economy's deterioration and my expectation of an extended period of subpar economic growth in which interest rates stay relatively high - the market will not have a sustained period in which participation broadens out into the other 493 members of the S&P Index.

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From David Rosenberg of Rosenberg Research Friday morning:

Not just that, but the segments of the stock market that did best yesterday were the same ones that deflated the most in the CPI report — as in, the areas seeing the weakest pricing. So, this smacks more of a value trade built on technical and short-covering as opposed to anything durable. Growth stocks are generally where you want to be in this environment, but they are too pricey, especially in the Tech space — but to be going long “value” stocks despite their more alluring valuations in a 1%+ GDP growth backdrop with declining pricing power makes absolutely zero sense. 

I am also increasingly confident that a turn in the prospects for a long/short book (vs "long only") is at hand in the new "market of stocks."

At the time of publication, Kass had no positions in any securities mentioned.

This commentary was originally posted Friday in Doug's Daily Diary on TheStreet Pro.