Energy and financial stocks rise, Big Tech falls as “rotation” continues

“We are done, ladies and gentlemen, catering to Wall Street. We’ll commit to the working man. We’re done importing foreign labour, we are going to fight for American citizens and their good jobs and their good wages” — Republican vice-presidential nominee J.D. Vance said during his address at the third day of the GOP convention in Milwaukee.

Looks like politics — and markets — are going to be interesting again.

Stocks rose early Thursday in Europe with divergence in the US offering some clues – cyclicals like energy and financials did well, while Big Tech shares performed badly. It’s rotation, they say. The European Central Bank is certain to leave rates on hold today and give some vague hints about what it could do in September.  

Is the rotation out of Big Tech “healthy”?

Now go the small caps? The Dow Jones Industrial Average (DJIA) hit a fresh record high, the Nasdaq was at a two-week low, S&P 500 tech stocks were down 5% for the week, while the Russell 2000 added 10% — it has looked a bit more like a healthy broadening than caution overwhelming investors.

The rationale is that with fresh momentum in small cap stocks there may be a trade here that makes sense without worrying bulls too much. But they will be mindful about Big Tech (and tech more broadly) and the ripple effect cascading and we saw the Russell 2000 dip after initially rallying yesterday, finishing down 1% for the session. Yet the DJIA rallied 0.6%.

Chipmaker stocks fall on reports of more restrictions, Trump Taiwan comments

Chipmaker stocks fell (NVDA -6.62%, AVGO -7.91%) on reports of more US restrictions as well as those Trump comments re: Taiwan. The weight of these in the index and exposure to them among investors of all colours makes it hard to engineer a sustained healthy rotation on a purely arithmetical basis (market cap weightings in the indices) and in a broader sentiment sense.  

We saw that play out a bit yesterday — though the Dow held up as defensives and cyclicals outperformed (interest rate cuts are coming). Financials, pharma, energy, consumer defensives all had a good day. The S&P 500 lost 1.39%, whilst the Nasdaq slid 2.77% for its worst session since December 2022. It closed at its lowest since July 1st. Away from the bloodbath for tech, there was some good news — Taiwan Semiconductor Manufacturing Company (TSMC) reported a 36% jump in net profit.  

The Buffett indicator hit 200% before falling back yesterday — the fundamentals and technicals are shouting that something is not right.

UBS sees $83 trillion wealth transfer over next three decades

It’s easy to get swept up in the day-to-day noise of earnings, rates, 0.3% moves —but take a step back and look at the bigger picture. UBS’ Global Wealth Report for 2024 said the bank expects more than $83 trillion of wealth to be inherited in the next three decades:  

“Roughly USD 83 trillion are expected to be passed on within the next 20 to 25 years... On average, individuals passing on wealth are just over 84 years old, and the recipients they pass it to are approximately 59 years old”.

That is a huge wealth transfer which will likely power asset price growth and spending like before. But the dollar is up for grabs.

The price of gold hit a record high – the 4D trade: debt debasement & dollar devaluation.

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