The S&P 500 is well off its lows from earlier but still down on the day as the market goes through this rotation. What’s happening right now is major profit-taking in this year’s leaders and mega cap tech darlings. Money is rotating out of the Magnificent 7 and slowing into small caps and lower quality companies with weak balance sheets that were beat up this year due to a tough macroeconomic backdrop.
Investors are betting that if the Federal Reserve starts to loosen its monetary policy next year, the economic pressures that have hurt these stocks will ease. But chasing lower quality stocks is not a great long-term strategy. That’s why we look to buy high quality companies when they are put on sale. “Do not chase the bad, start looking at the good” Jim said.
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