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A Sector Rotation Is Poised To Lead Rally
Why market leadership can move on from mega-tech stocks to more mundane sectors . By Christopher C . Williams
IT ’ S INDEED BEEN A HOT SUMMER , WITH TEMPERATURES soaring to record levels in many regions . Stocks too are having their season in the sun , with all major indices hitting record highs . That two-year rally has been fueled mainly by investors ’ exuberance for almost all things AI and tech . Specifically , the S & P 500 index surged to a high of 5,669 on July 16 thanks to a cluster of mega-cap , high-growth stocks dubbed the Magnificent 7 that include names such as Nvidia , Meta and Alphabet .
As summer inexorably rolls into fall , some market strategists say they are expecting these mega-cap tech stocks to eventually give way to other sectors and the remaining 493 stocks as the main drivers that propel the rally well into 2025 . Industrials , financials and utilities are the top bets to set the pace beyond the current market cycle , say some strategists and wealth managers .
In other words , these sectors are built to last , say bulls , who cite these companies ’ strong fundamentals , promising growth prospects , attractive valuations and sensitivity to easing monetary policy . Rate-sensitive real estate , frequently dismissed as the most-hated sector , also gets nods from some advisors and strategists as a potential dark-horse market leader , as it ’ s likely to perform well when the Fed starts cutting rates as expected this month .
“ The forgotten 493 will move into greater prominence as the Fed nears the beginning of its rate-cutting cycle ,” says Todd R . Walsh , the CEO and chief technical analyst of Alpha Cubed Investments , an independent investment advisory firm in Irvine , Calif . “ These are regular economy stocks that have been sitting around waiting to see if this recession we ’ ve been talking about for two and a half years would happen .”
The market has put the risk of a recession in the rearview mirror , and Walsh adds that “ the capex going into building AI is going to continue to form the backbone of a bull market that might last four to seven years .”
Some analysts and wealth managers , such as Jack Ablin , CIO and founding partner of Cresset Asset Management , also say small caps could outperform their larger cousins in the coming months . Small stocks tend to benefit from an easing monetary
44 | FINANCIAL ADVISOR MAGAZINE | OCTOBER 2024 WWW . FA-MAG . COM