DIA - This Is The Wall In Front Of The Magnificent 7
2024-07-11 10:06:43 ET
Summary
- Rates of change are more important than absolute numbers in economic statistics for the economy and markets.
- Magnificent 7 stocks are experiencing negative rates of change in earnings growth, while the remaining S&P 500 names are expected to improve.
- Investors driving Magnificent 7 stock prices higher despite deteriorating growth rate expectations, ignoring improving fundamentals of other S&P 500 names.
I have written a lot over the past two years about the importance of rates of change in high-frequency economic statistics. Most investors and many market pundits focus on the absolute numbers when determining the relevance of a data point for the economy and markets. For example, an inflation rate of 6% is horrible on a standalone basis, but what is far more important is the direction the rate is headed in over the coming months. If the 6% rate is going to gradually fall to 3%, then it is bullish. If it is going to gradually rise to 9%, then it is extremely bearish. Focusing on rates of change is what led me to the conclusion two years ago that the US economy would land softly, and I have never deviated from that outlook. Time will tell, but that forecast has gone from a slim minority to the majority view today. Now I am focusing on a different rate of change, but it is not a bullish one....
This Is The Wall In Front Of The Magnificent 7