Investors can “put it in your back pocket as something to be mindful of. To the extent that there’s a negative catalyst, it does mean that there’s sort of money and attitudes on one side of the boat, but in and of itself, it doesn’t suggest a downturn. I think these rotations under the surface are likely to continue to characterize the market,” the strategist said.
If mega-cap stocks continue to outpace the rest of the market, conditions could align “for something that looks like the first half of 2024, which at the index level you would’ve thought nothing to see here, nothing to worry about, successive new highs, but a lot more churn and weakness under the surface,” said Sonders, adding that this wouldn’t be a big surprise heading into 2025.
For several months starting mid-July, the market saw a traditional improvement in breadth, with participation down the cap spectrum, “but now we’ve got that rotation back into the Magnificent Seven” mega-cap tech stocks, she noted.
Investors may place a greater premium on the ability to grow earnings in 2025 than on profitability levels, which mattered significantly in the last year, Sonders suggested.
