The Magnificent Seven stocks are collectively lagging the S&P 500 year-to-date, while small-cap, international, value, and dividend stocks are all outperforming. That more defensive pivot might make some investors nervous, but I'm not sure there's reason for concern yet. The economy has been in good, if not great, shape.
Earnings growth is expected to be strong for at least the next couple of quarters. If inflation doesn't spiral higher, the markets may be able to handle a potential rate hike just fine. This Rare Signal Is Flashing Again.
In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » It may be time to be more cautious with tech and growth stocks, but I believe the environment is setting up nicely for the Vanguard High Dividend Yield ETF (NYSEMKT: VYM).
Here's a brief rundown of the conditions the financial markets are facing right now: The futures market is pricing in a 65% chance of a rate hike by year-end. That makes it likely, but not a done deal. The current inflation rate of 3.5% is still above the Fed's 2% target but has cooled over the past two months.
Kevin Warsh and the Fed may opt to wait it out to see if inflation can come back down on its own without intervention. Oil prices are still elevated but off highs. The shock is geopolitical and supply-driven, so rate hikes may not have a real effect on them.
Earnings growth still looks solid and should minimize the risk of recession. Current equity market behavior suggests an orderly rotation within U.S. equities but no major selling. With rates likely to stay high over the remainder of 2026, investors are rethinking how much they want to pay for tech stocks.
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