SPY - Wall Street Exclusive - Searching For Diversity

2024-07-01 10:48:09 ET

Summary

• Two themes (obsessions) dominate the scene: AI and interest rates.
• The most significant disparity across the growth/value and market cap spectrum is between large-cap growth and small-cap value. Three stocks individually have bigger market caps than the entire Russell 2,000.
• Aspirations for and benefits from the AI transition are high, but so are the hurdles to making it all work. The current ideological and regulatory mindset is at odds with the "transition," and that will have to change.
• There is precedent for the S&P Equal weight index to do well even if mega-cap Tech eventually rolls over. That premise suggests the market can broaden, instead of crash, if/when BIG Tech pauses.

"The only constant in the technology industry is change." - Marc Benioff

THE MACRO VIEW

In April, we watched the equity markets sell off due to perceived inflation re-acceleration and economic overheating. That was followed by a period when investors were concerned that the economy was slowing so fast; the Fed had already missed its opportunity for a "soft landing." The bottom line is that very little has changed in the economy this year; it's been slowing consistently with improving inflation since 2022.

The issue continues to be the conflicting data prints. The government data skewed "hotter" in 1Q and "softer" in 2Q from those hotter levels, But year over year it all looks remarkably consistent with steady slowing. The bond market has been whipsawed, with the major equity market impact resulting from investors seemingly giving up on most equities and pouring more and more dollars into fewer and fewer companies, largely impacted by the only substantial and sizable area of economic growth, artificial intelligence....

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