This is what I took away from today’s morning briefing, which you can subscription To be delivered to your inbox every morning with:
Tesla (TSLA) and Alphabet (GOOGL) kicked off Tuesday’s big tech earnings season with mixed results. Both were down in after-hours trading.
But for all the concern about the concentration of huge gains in the hands of a privileged few, stock bulls have two reasons to cheer as earnings season heats up.
First, markets have just completed a violent cycle that shifted gains from the seven largest U.S. stocks — Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Meta (META), Nvidia (NVDA), Tesla, and Alphabet — to small-cap stocks and interest-rate-sensitive names.
Sectors such as real estate, home building, and regional banks are among those leading the way now.
The seriousness of this move – which has been accelerated by recent weak inflation figures – should not be underestimated.
Liz Ann Saunders, Chief Investment Strategist at Charles Schwab books June was the month of Russell 2000. worst The month versus the Nasdaq has been more than a year. However, it indicates that July is already tracking better Since 2016.
Meanwhile, in the land of the giants, the seven great ones Lost The market cap of small-cap stocks hit $1.25 trillion over the course of seven sessions recently — just as small-cap stocks are beginning to assert their strength.
The $1 trillion drop in Mag7’s valuation represents an 8% price drop — yet the overall market (the S&P 500) is down only 2% over the same period. Timing is everything.
Another bullish wind is the catch-up game.
The S&P 493 (S&P 500 excluding the Mag Seven) finally rises from the earnings stagnationlike male By the US Equity and Quantitative Strategy Team at Bank of America.
Bank of America wrote that earnings per share for the S&P 493 index have remained “flat or declining over the past five quarters,” even as earnings per share growth for all 500 companies turned positive three quarters ago.
This newfound strength for the rest of the market comes as earnings growth for the seven major companies is expected to slow for the second straight quarter and again in Q3.”
Earnings growth also appears to be on a higher time frame.
The fact that overall market volatility remains subdued despite these tectonic shifts taking place under the hood is a testament to the resilience of the bull market itself.
Bank of America expects the rise to continue through broad expansion.
“Given the close correlation between technology stock outperformance versus earnings,” the bank wrote, “we expect the narrowing growth gap to be a catalyst for market expansion.”
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