Weekly Review – Economy Eroding, Stocks Running

What Happened: Consumer Price Index (CPI) falls .1% bringing the 12-month CPI to 3%. Tech heavy NASDAQ fell close to 2% while Small Caps rallied over 3% on the day.?

What Does it Mean??

For the last few weeks, we’ve been fielding questions regarding our ‘One Step Towards Cautionville’ and corresponding portfolio rebalance. In fact, we’ve scheduled a Webinar next week to discuss this and other thoughts into the 2nd half of 2024 you won’t want to miss. Register HERE.

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From our vantage point a few things have been transpiring under the surface while the big-cap Mega tech have been on absolute fire. The first being the not-so-subtle erosion of the economy in our opinion. Recently we saw a Chicago Purchasing Manager’s Index Service report which was the lowest since Covid.??

Furthermore, we’re becoming concerned with increased debt levels by consumers in addition to consumer driven companies such as Nike and Delta seemingly telling us that spending is on the decline. This level of economic activity has given us the idea that inflation also has been cooling. Due to this thesis, we have believed that the big cap tech names may have run their course giving way to a broader move in other areas. While one day does not make a trend, that is what we’re seeing as I write this piece on Thursday, July 11th.

Why Do We Care???

While we have been bullish for quite some time now, the truth of the matter is that most areas, outside of big-cap tech have not done well. In fact, before today’s small cap rally, the entire index of small caps was barely positive for the year and still 15% below all-time highs. The Dow, which recently celebrated a move over 40,000 has dropped back and has only advanced around 5% for the year. In short, diversification has stunk…until now.?

Similar to the final quarter of 2023, when market strength broadened to other areas, we feel other areas such as small and mid-cap stocks may be ripe for further upside, should the current trend of inflationary pressure and interest rates be on the decline.?

Unfortunately, those who have become overly concentrated into big cap technology may arise to a rude awakening as long overdue profit taking kicks in. This is precisely why we have begun to rotate our positioning ahead of this and will continue to do so should the thesis prove to be correct.?

Upcoming Webinar: This coming Wednesday, July 17th we’ll be discussing this and more in a webinar open to all. REGISTER HERE and we look forward to seeing you then.

Until next time

~ Quint

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