“Beyond the surface of overall calm markets, rotations are playing out. Investors should position for a broadening of equity markets by diversifying their exposure and focusing on structural resilience, pricing power and companies’ ability to absorb shocks.”
Rotations are playing out
- The start of earnings season has been accompanied by greater dispersion in performance across and within sectors.
- At the sector level, previously lagging areas are starting to lead. Within the AI trade, investors are rotating from the most expensive segments towards other parts of the value chain.
- Amid widening dispersion, investors should focus on quality stocks and sector diversification.
In US equities, recent weeks have shown that despite low market volatility, single stock volatility is rising, as investors increase scrutiny. Market expectations for the upcoming earnings season are high, leaving the market vulnerable to some fragility in case of disappointment. In the technology sector, investors will pay particularly close attention to companies exposed to the shift in customers’ spending towards chips and servers, as well as those that have already deployed significant AI investments. In addition, the recent weakness in semiconductors suggests that markets are also rotating away from chips – the main early beneficiary of AI investments – towards other segments of the AI value chain, including infrastructure, power and applications, in search of new opportunities. This is helping other sectors, such as financials and defensives to lead, while tech stocks ease back from record highs.
You can now read the full whitepaper at the link below
