Last week, there was more evidence of rotation, which will be masked but unchanged in the down sessions, as the biggest names meander or drift lower. Keep in mind that 71% of the S&P 500 (SPX) closed higher last Thursday. The question is whether this is temporary or long-lasting. Right now, I think it’s the former, but it still requires some adjustments.

Less exposure to momentum is worth considering.

Mag Seven Undervalued

The “Mag Seven” is undervalued, and there are signs the market is beginning to anticipate a time when the mega spenders slow down and reap rewards for those investments.

It's early, but we look for these signs to either take advantage of it now or somewhere down the road.

Meanwhile, the artificial intelligence (AI) buildout is just beginning, and fortunes remain to be made.  Even the most bearish firm on the Street upped its targets on memory names last week, along with beneficiaries of cheaper gasoline.

Fourth of July Postscript

It's easy to see why younger Americans think there is a de facto promise of a greater life than the prior generation. The irony is that the average Gen Z earns more money, adjusted for inflation, than any prior generation.

Yes, things are expensive, but so are unnecessary things like 95% of the apps on their phones.  Moreover, vacations and nice restaurants were once considered luxuries. As we begin the journey into the next 250 years of America, I would like to see labor receive a greater share of the pie, but not by punishing success.

For me, the stock market is the great equalizer. Anyone can get involved and make their own fortunes.

Today’s Session

Growing talk of rotation saw lots of tire-kicking last week as semiconductors and momentum names beat a hasty retreat.

Over the weekend, there were countless articles on the topic, although most came from the same folks who have been calling the demise of momentum since they began distancing themselves from the rest of the market.

There is an innate belief in all of us that fortunes change in large part as a form of justice.  But when we adopt that as a reason to make guesses in investing or gambling, it’s usually a mistake.  We don’t have to guess. Price movements indeed precede fundamental evidence, but industry actions occur before the share price moves.

That’s where the confusion also comes into play.  Nvidia’s (NVDA's) delay of Kyber has knock-on impacts across a variety of niches, including co-packaged optics (CPO) and near-package optics (NPO).

Chips Not Done

The greatest speculation has been about when hyperscalers will slow down spending and when key bottlenecks will be resolved.   This set of circumstances has rallied semiconductor stocks, but recent action in them hints that the party is almost over.

It’s not.

But not being over doesn’t mean those stocks didn’t need to let off some steam.  They have let off steam, enduring the second double-digit pullback this year.

A few Wall Street firms are making their move to defend semiconductors.

Bank of America acknowledges “seasonal weakness,” but sees global cloud and AI spending at $1.5 trillion in 2027.

UBS has come out in defense of DDR, raising its contract pricing forecast to +32% quarter-to-quarter in the third quarter from 17%, and to +18% quarter-to-quarter in the fourth quarter from 12%.

Citigroup (C) added Micron (MU) to its upside 90-day catalyst watch while raising its average selling price (ASP) estimates for the second, third, and fourth quarters. The analyst there cites stronger demand for CPUs.

These upgrades came at a very important time.

This morning, semiconductors start the week at pivotal support points. This is the second double-digit pullback of the year, and SMH is hovering just above its 50-day moving average.

I think investors will still look beyond chips and even at Mag Seven but also beyond Technology (XLK). 

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