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Is The Rotation For Real?
Is the rotation for real?
That's one key question for equity investors going forward.
As discussed here last week, the post-CPI trade in the US saw small-caps outperform big-tech and the equal-weighted S&P outperform the cap-weighted benchmark by huge margins.
Although the S&P did rise for the week, it underperformed the egalitarian index by the most since November of 2020.
The thesis is straightforward. America's corporate "have-nots" struggled as the Fed raised rates. Now that ra
“Positioning could also be behind it?” “Could also”? Seriously?
Does anyone here really believe that a quarter point or half point rate cut over six months will rescue debt-laden small cap companies? How many bank loan officers will risk their careers and livelihoods on that assumption?
It’s ALL rotation, nothing more. A push button rotation via ETFs that can and will be reversed on a dime.
Yeah, that’s exactly right. On all points.
I’d add that a lot of it was probably short covering / short legs unwinding too. Once it started moving in the “wrong” direction, it was probably just brutal.
Yep, good point.
I also question if the yield curve will shift down, or just steepen. As Trump’s chances rise, the risk of directly inflationary policy (weak dollar, blanket tariffs, forced rate cuts, tax cuts) rises as does the risk of higher general uncertainty. Most small companies borrow in the 3-7 year range I would guess. I don’t know if the belly will be on the steepening side of the curve.
The positive for the smaller names is, of course, that they are much lower valuation and lower expectation. Probably not going to help in a recession. Might well help in a Trump bump.