Buckle up because we need to talk about something that could make or break your portfolio in the coming weeks. It’s this so-called “Great Rotation” that everyone and their brother on Wall Street is suddenly yapping about.
As our friend Corey McLaughlin over at Stansberry Research pointed out, when “everybody knows” about a market trend, that’s exactly when you need to start questioning it. In Corey’s words:
“When ‘everybody knows’ one thing, it’s time to think differently. That story is already priced into the market… And it looks like everyone knows about this rotation now.”
Corey McLaughlin
Bingo. The financial media has latched onto this “Great Rotation” narrative faster than a cat pouncing on a laser pointer. But as savvy individual investors, we need to be smarter than the herd. Let’s break this down…
Why the “Great Rotation” Might Be More Hype Than Substance
Yes, there has absolutely been a notable shift in the past week or two, with capital flowing out of mega-cap tech names and into small-caps and industrials. Corey shared a revealing stat:
“Andy Constan, who runs the macroeconomic and commodity research firm Damped Spring, points out over the last five trading sessions, the Magnificent Seven market cap dropped by $349 billion, while the Russell 2000 rose by $324 billion.”
Corey McLaughlin
On the surface, that looks like a slam dunk “rotation” trade. But here’s the thing – now EVERYONE is talking about it. The phrase “Great Rotation” is plastered all over the financial headlines. And what happened on Thursday? Everything sold off, rotation darlings included.
This is a classic sign that a crowded trade narrative may have reached its expiration date. The big money that’s going to move based on the Fed’s expected rate cuts has likely already made its move. So we have to be extremely cautious about chasing this trend now that it’s become conventional wisdom.
Don’t Sleep on the AI Megatrend
The other thing I want to highlight from Corey’s piece is the pullback we’ve seen this week in AI-related stocks like NVIDIA. Some of this is just healthy profit-taking after an incredible run. But there’s also rising uncertainty around the US-China-Taiwan situation and how that could impact the semiconductor industry.
However, one week of politically-driven volatility does NOT negate the long-term transformational potential of artificial intelligence. In fact, our good friend Joel Litman of Altimetry just hosted an “AI Panic Summit” to address this very topic.
As Joel explained, a powerful new form of AI is coming to the markets that could upend everything. Click here for the full scoop on what Joel believes you need to know and do to stay ahead of the AI curve.
Stay Nimble Out There
The key takeaway here is that we have to remain flexible and skeptical, especially when the rest of the market starts to become rigid in its thinking. Question the obvious narratives. Don’t be afraid to go against the grain when your analysis points in a different direction.
The true “lifeblood of a bull market,” as Corey reminds us, is capital sloshing around between sectors – not everyone piling into the same overcrowded trades. Let’s keep our eyes open for the NEXT rotation, the one the headlines aren’t screaming about yet. That’s where the real opportunity lies.
Stay sharp out there, Market Monitors. This is the kind of environment that separates the pros from the patsies. Make sure you’re on the right side of that trade.
Yours in intelligent investing,
The Market Monitor
