Market Take: Analyzing Market Trends and Earnings Prospects
In the latest market update, analyst Wei Li discusses the powerful rotations happening in the market, particularly the catch-up of small-cap stocks. These rotations have been driven by recent macro trends, such as the surprise downside in CPI leading to speculation of more rate cuts.
Despite the near-term uncertainty in macro trends, Li cautions against extrapolating too much, pointing to structural forces like labor shortages and geopolitical fragmentation that could lead to higher inflation levels in the future. While a Fed rate cut is expected in September, rates are likely to remain higher than pre-pandemic levels.
Li emphasizes the importance of focusing on fundamentals and earnings prospects when investing in equities. Tech stocks are still expected to deliver strong earnings growth, with tech companies projected to see an 18% increase in earnings this season.
Looking ahead, Li predicts near-term volatility leading up to key events like Nvidia’s earnings report in August. This volatility, fueled by concerns around tech capex returns and summer thin liquidity, could provide opportunities for investors to re-evaluate their positions.
In conclusion, Li encourages investors to lean into the dislocations in the market as they reassess their conviction in the fundamental picture. Despite the uncertainty and potential volatility, staying focused on fundamentals and being prepared for market shifts can help navigate the current market environment.
