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Tesla (TSLA) and Alphabet (GOOGL) started Tuesday with mixed results from Big Tech earnings reports, with both stocks falling in after-hours trading.
But despite concerns about the concentration of huge profits in the hands of a few powerful people, stock bulls have two reasons to celebrate as earnings season gets underway.
First, the market completed a strong rotation, shifting profits from the seven largest U.S. stocks — Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Meta (META), Nvidia (NVDA), Tesla, and Alphabet — to smaller caps and interest rate-sensitive names.
Currently, industries such as real estate, homebuilding and local banking are leading the way.
The severity of this move, accelerated by recent weak inflation figures, should not be underestimated.
Liz Ann Sonders, chief investment strategist at Charles Schwab, said June was the month for the Russell 2000. worst The Nasdaq index is at its highest level in more than a year. However, July has already seen the Nasdaq index Best Since 2016.
Meanwhile, in the land of giants, the Magnificent Seven lost Market capitalization hit $1.25 trillion over the last seven sessions, just as small-cap stocks were beginning to show strength.
Mag Seven's $1 trillion+ valuation drop represents an 8% drop in price, while the overall market (S&P 500) is down only 2% over the same period.Timing is everything.
Another tailwind in favor of bulls is earnings catching up.
According to the BofA U.S. Equity and Quantitative Strategy team, the S&P 493 (the S&P 500 minus the Mag Seven) is finally emerging from its earnings slump.
Bank of America notes that earnings per share (EPS) for the S&P 493 companies have been “flat to declining over the past five quarters,” but EPS growth for all 500 companies turned positive three quarters ago.
This renewed strength in the rest of the market coincided with the Magnificent Seven's revenue growth slowing for the second consecutive quarter. [third quarter]”
Revenue growth also appears to be rolling over longer time frames.
The fact that overall market volatility remains subdued despite such seismic shifts occurring below the surface is a testament to the resilience of the bull market itself.
And Bank of America expects the rise to continue through broader breadth.
“Given the high correlation between strong tech stock performance and profits, we expect the narrowing growth gap to be a catalyst for market expansion,” the bank wrote.
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