[Weekend Money] U.S. Stock Market Enters "Endless Rotation Trade"...Easing Concentration in Big Tech

The Return of Energy, Consumer Staples, and Industrials
For Tech Stocks, It Is Now About "Separating the Wheat from the Chaff"
Stabilization in Cryptocurrencies and Software Holds the Key to a Rebound

This year, the U.S. stock market has been delivering relatively weak performance compared with other major global markets. While this is partly the result of overlapping domestic and external headwinds, some analysts say that within the market, capital is rotating into previously neglected sectors in an "endless rotation trade."

According to iM Securities, the overall U.S. indices have stalled, but a closer look reveals some positive changes. The weight of communication services and IT sectors, which had been led by large-cap tech stocks, is declining, while rotation into previously neglected areas such as value stocks and small caps is accelerating as funds flow in.

In practice, the energy sector has rebounded on the back of development issues in Venezuela, and consumer staples have recovered thanks to consumer support measures by the Trump administration and demand for defensive stocks following index adjustments. Materials and industrials are also continuing to post solid performance, supported by low valuation burdens and capital expenditure (CAPEX) momentum. With upward pressure on long-term Treasury yields persisting due to inflation and fiscal risks, this value-stock-centered rotation trend is expected to continue for the time being.

Going forward, when it comes to investing in technology stocks, a strategy that focuses on a small number of companies that can actually prove their profitability and technological capabilities, rather than on the sector as a whole, is likely to be effective. In particular, warning signs are growing around software companies that are falling behind in the artificial intelligence (AI) race or are burdened with excessive debt.

In the short term, however, whether the cryptocurrency and software sectors, which had been the trigger for sharp market declines, can stabilize is expected to be the key to a rebound in tech stocks. It is positive that Bitcoin, after plunging to around 61,000 dollars, has recently recovered to the 70,000 dollar level, easing some of the panic selling.

Park Yooncheol, an analyst at iM Securities, said, "Now that the earnings announcements of big tech companies, which had exposed cost issues, have wrapped up, sharp swings in the indices are likely to be limited," adding, "If the declines in software and cryptocurrencies come to a halt, we can look forward to a short-term rebound in technology stocks."

This content was produced with the assistance of AI translation services.