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Markets are taking a turn as the Russell 2000 (^RUT) makes gains while the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) lag from pressure facing the chip sector. Kestra Investment Management CIO Kara Murphy joins Market Domination Overtime to discuss the markets' movement and how investors should navigate the rotation.
"We've definitely been having this big shift in leadership in the market. And I think it's one that many of us have been anticipating for a long time. If you look at over the last six months, 80% of the constituents of the S&P 500 have underperformed the index... Now all of a sudden, we get a couple of good inflation prints, a couple good labor prints. Looks like Fed can start to cut interest rates, and all of a sudden, the macro environment starts to change. And I think this is a hint of what is going to turn out to be a broader trend," Murphy explains. While the tech sector has driven most of the S&P 500's gains this year, she notes that its high expectations show "how vulnerable sometimes names can be after they've been in favor for a long time."
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She encourages investors to start rotating out some mega-cap names for some smaller-cap and mid-cap names, explaining that with mid-caps, "you have companies that are a little bit more established, a little bit more mature, a little bit more diversified, better balance sheets in general, but largely ignored by a lot of the market, right? Everybody's been rushing into the S&P. So if you step down just a little bit in market cap, you get a really rich area for stock picking." She adds that those stocks are best poised to benefit from a low-rate environment. Murphy also points to the infrastructure sector as a potential investment opportunity as it is in need of upgrades that will most likely be on the agenda of whoever takes the White House in 2025.
For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.
This post was written by Melanie Riehl