Will the rotation in US stocks continue?

Shares of about 300 companies in the S&P 500 closed higher on Monday. An index tracking the “Magnificent Seven” stocks rose 1 percent, while the Russell 2000, which includes smaller companies, fell 1.1 percent. But that rotation has played out throughout July, with the S&P 500 down nearly 3 percent in the past two weeks, led by technology stocks. “It’s almost impossible to know whether the worst of the recent sell-off is over,” said David Lefkowitz, chief investment officer at UBS Global Wealth Management. “However, we continue to believe the outlook for the stock market is positive given resilient U.S. growth, falling inflation, possible Fed rate cuts and artificial intelligence spending,” he said. Whether or not the Fed cuts rates in September, the foundations for a broad stock rally appear to be underway, according to John Stoltzfus of Oppenheimer Asset Management. Morgan Stanley’s Michael Wilson said the weak outlook for corporate earnings in the U.S. will weigh on stocks of companies that are more sensitive to growth, and he predicted the outlook would not support a further rotation into cyclical stocks. RBC Capital Markets strategist Lori Calvasina said the revisions to corporate earnings expectations in the U.S. did not support a further rotation. “While the selling pressure on majors won’t last forever, small-caps could continue to perform well as the economy recovers and the Fed moves closer to its first rate cut of the current cycle,” said Bret Kenwell of eToro.