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Why This Strategist Says Tech Rotation “Has Legs”
The technology sector (XLK) he has has experienced a market rotation with investors turning to small caps (^ROUTE). State Street Global Advisors US SPDR Business Chief Investment Strategist Michael Arone joins the Morning Brief to discuss his market outlook.
Arone identifies “a trifecta of positive news” that triggered the rotation into the tech sector: cooler-than-expected inflation reports, Federal Reserve Chair Powell suggesting interest rate cutsand Powell’s acknowledgement that he did not see inflation reaching 2%.
However, this earnings season has shown that “good is not good enough” for the Magnificent Seven tech stocks. Despite the top and bottom outperformers, any weakness in the AI or cloud businesses has been “a drag on the stock,” suggesting that the rotation “has legs”.
Amid this shift, Arone singles out the financial sector as an attractive sector, noting increased M&A activity and improving profits. Arone also points to the insurance sector, saying it is “an area where they have pricing power.”
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This post was written by Angel Smith