Wall Street posted its worst week since mid April, as a rotation out of technology stocks sparked by last Thursday’s consumer inflation report continued over the past few days. The primary driver of this week’s loss in the S&P 500 was a continued rotation out of technology stocks. The unwinding of the “tech trade” was sparked by last Thursday’s soft consumer inflation report. The data on consumer prices followed the June nonfarm payrolls report earlier this month that showed slowing jobs growth and an uptick in unemployment.
With inflation moving in the right direction and the highly resilient labor market finally showing signs of cracking, investors have gained the confidence to start moving out of technology names and into other assets such as defensive and value sectors and small-cap stocks. For the week, the Nasdaq was down 3.65% and the S&P off 1.96%. Conversely, the Dow was up 0.72%.
On the inflation front, US central bankers appear ready to cut interest rates in September amid growing confidence that price stability is within sight— while risks to the labor market have grown. They’ve laid the groundwork for the coming move in speeches over recent weeks, and Chair Jerome Powell will likely flag it more explicitly when the Fed meets at the end of July.
Future Wealth’s View
In our report on June 30th, 2024 titled “Is it time to rotate?”, we had highlighted that “it may be time to look for breadth in one’s portfolio that may be overloaded with high performing technology stocks. It may cost a few percentage points in gains if technology stocks continue to rally but rotating into sectors such as healthcare, industrials and financials may provide relief if Nvidia’s recent sell off is any indication of what could be coming in the second half of 2024.” The link to the report is here – https://futurewealthllc.com/
The cyclical nature of the stock market is badly underestimated, in our view. There are investors still holding on to Cisco stock they bought in 1999 in the hope that it will reach levels that were predicted during the internet boom. We will likely hear similar stories from recent Nvidia investors 10 years from now. It is important for investors to pay attention to the changing economic and political landscape and not become married to the stocks they own.
Peter Lynch, widely considered to be one of the smartest fund manager that Fidelity ever produced, once stated – “You don’t have to kiss all the girls. I’ve missed my share of ten baggers and it hasn’t kept me from beating the market.”