Daily Brief - Big Tech's Slowdown Sparks Sector Shuffle

TLDR: Big Tech has been the star of the stock market rally since October 2022, but a cloudy earnings forecast for the rest of 2024 suggests other sectors may need to step up to keep the momentum going.

Sectors such as energy, materials, consumer discretionary, industrials, and financials are set for stronger performance in the second half of the year.

Bank of America reported a $2.2 billion withdrawal from tech stocks in late May, with the largest inflows directed toward the consumer discretionary sector. Additionally, materials and healthcare are expected to shine, with projected profit growth of around 25% by Q4.

This broader market participation is likely crucial for sustaining the market’s upward trajectory. However, Big Tech remains a significant player. The S&P 500's top five stocks—Microsoft, Apple, Nvidia, Alphabet, and Amazon—have collectively added $2.9 trillion in market value this year, solidifying information technology as the S&P 500’s leading sector with a 31% weighting.

Despite this dominance, profit growth for these giants is slowing. After three quarters of over 44% earnings growth, they are expected to see this figure drop to 29% in Q2 and into the teens in H2. Nevertheless, their high quality and robust cash flow could enable these companies to continue outperforming.

Ultimately, Big Tech's ongoing innovation, particularly in AI, could support other sectors, indirectly sustaining market growth. As long as Big Tech meets their profit expectations, it signals positive prospects for the economy.

Market Movers: S&P Sectors 6M Performance

Here is the 6M performance from the S&P sectors:

1. Communication Services: 27.19%
2. Information Technology: 22.66%
3. Financials: 10.50%
4. Consumer Staples: 10.48%
5. Health Care: 8.36%
6. Industrials: 8.29%
7. Utilities: 7.62%
8. Energy: 6.52%
9. Materials: 5.25%
10. Consumer Discretionary: 2.49%
11. Real Estate: -6.00%

Scenario Spotlight: S&P Consumer Discretionary

The chart above shows the historical 6-month response from the S&P Consumer Discretionary sector, post the past 50 episodes when the index rose 2.49% in 6 months with the FED policy rate between 5.25 - 5.50%

Earnings Spotlight: Casey's General Stores reports tomorrow

Casey's General Stores last reported earnings of $2.33 per share for the quarter, surpassing the consensus estimate of $2.20 by $0.13. The company's revenue for the quarter was $3.33 billion, falling short of the analyst estimates of $3.51 billion.

Analysts anticipate that the company will announce earnings of $1.74 per share for the upcoming quarter.