Podcast Summary
Stock Market Rotation: Investors are shifting money from growth stocks to defensive and cyclical sectors, with utilities being the most overweight sector and tech and mega-cap stocks taking the brunt of the selling. The Dow Jones Industrial Average reached a new all-time high, while the NASDAQ and S&P saw declines. Gold is taking a breather but could potentially hit $3,000 per ounce.
There's a significant rotation trade happening in the stock market, with investors shifting their money from growth stocks to defensive and cyclical sectors. The NASDAQ and S&P have seen notable declines, while the Dow Jones Industrial Average has bucked the trend and reached a new all-time high. According to Bank of America's latest fund manager survey, long positions in growth stocks are the most crowded trade, with 71% of money managers identifying it as such. Meanwhile, utilities are the most overweight sector for the first time since February 2009, with investors increasing their allocation to the defensive sector by 20 percentage points month over month. The biggest monthly increase on record. Sectors like tech and mega-cap homes have taken the brunt of the selling, while energy is the top performing sector, followed by real estate and consumer staples. The Russell 2000, which represents small caps, is not getting a rotation boost and is hovering around the unchanged line. Gold, which hit an all-time high the previous day, is taking a breather but could potentially hit $3,000 per ounce as financial flows show potential for significant expansion. Economic data also showed strength, with housing starts and building permits both coming in higher than consensus.
Economic recovery and individual companies: The economic recovery is progressing, but sectors like multifamily and industrial production are showing varying signs of improvement. Individual companies like Five Below and Johnson & Johnson face unique challenges despite positive results in certain areas.
The economic recovery is showing signs of progress in some sectors, but challenges persist in others. According to Pantheon Macro, the multifamily sector is showing tentative signs of recovery, but single-family starts are expected to decline further. Industrial production saw a slight increase in June, but manufacturing growth may not continue at the same pace due to subdued surveys. Meanwhile, in the stock market, Five Below faced downgrades from multiple firms after lowering its Q2 guidance and announcing its CEO was leaving. The retailer cited a drop in demand from lower income customers. In contrast, Google-backed GitLab rallied on reports of a potential sale, with interest from companies like Datadog. Johnson and Johnson reported better-than-expected results, driven mainly by its pharma unit. However, its med tech division fell short of forecasts, leading the company to trim its adjusted diluted EPS guidance. Looking ahead, Barclays remained cautious on Tesla, reiterating an equal weight rating but raising its price target. J&J kept its sales outlook unchanged but trimmed its EPS guidance. Overall, the economic recovery is showing progress, but challenges remain, and individual companies continue to face their unique hurdles.
Competition in Pharma Industry: Experts warn of near-term headwinds for Eli Lilly and Novo Nordisk due to increased competition from new weight loss treatments, such as Roche Unit Genentech's CT-996, which caused an average weight loss of 6% within four weeks in a Phase 1 trial.
Despite the recent rally in the stock market, some experts are warning of near-term headwinds for certain stocks, including Eli Lilly and Novo Nordisk, due to increased competition in their respective industries. In the case of Eli Lilly and Novo Nordisk, this competition comes in the form of new weight loss treatments, such as Roche Unit Genentech's CT-996, which caused an average weight loss of 6% within four weeks in a Phase 1 trial. Elsewhere, Amazon experienced a brief disruption of its advertising portal for merchants, but the issue did not appear to significantly impact the ongoing Prime Day event, which saw sales up almost 12% year over year in the first seven hours. Investors looking for opportunities may want to consider the small cap growth trade, according to Morgan Stanley strategist Katie Huberty. She believes that longer duration small caps that are growth oriented have benefited more from yield declines, while small caps that are more economically sensitive have not. Additionally, history shows that small cap growth typically outperforms when the Fed begins cutting rates, and the biotech sector has a strong relative performance track record post-rate cuts.
