Maybe This Market Rotation Is for Real
The bad news is big-cap tech is losing momentum and may no longer be a leader.
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The senior indexes finished the day close to flat, but rotational action toward smaller stocks continued. The Russell 2000 IWM gained 1%, and breadth was positive at around 5,200 gainers to 4,000 decliners. There were over 500 names hitting new highs.
The action was broader on Monday with some rebound in the Magnificent Seven names, but the action on Tuesday hinted at the likelihood that this rotational action is not just a fluke and has a chance of gaining traction as we move closer to a potential rate cut in September.
The big question now is whether earnings reports from Alphabet GOOGL, Tesla TSLA, and others will trigger more rotation, shift things back to the narrow big-cap leadership, or cause a broader correction.
The Google report is out, and the stock is up about 1% initially, with slight beats in both revenue and EPS estimates. Texas Instruments TXN beat and provided in-line guidance, but is up about 4%. Tesla TSLA missed the EPS consensus, and the stock is trading down about 3% after hours. Conference calls are coming up.
The only other Magnificent Seven name to report so far is Netflix NFLX, and it struggled after a solid report. The conditions are good for some "sell the news" action in general, but we’ll see how things shake out Wednesday morning. Google will be a good test because it met the published expectations, but it was good enough to bring in more buyers.
The good news is that rotational action is looking solid. The bad news is that big-cap technology is losing momentum and may no longer be a leader. The best move right now is to focus on stock-picking in the areas that are benefiting from rotation.
Have a good evening. I’ll see you Wednesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
