As we have seen, there has been a sizable rotation out of growth and into value-centric assets since Thursday, July 11. Our thoughts:
The ‘Great Rotation’ needed a catalyst, and we now have a few of them (CPI’s disinflation print, changes in the interest rate cycle, 100% prob of a rate cut in September, etc).
All support the Great Rotation trade, which is out of secular growth winners. From our perspective, these are stocks that can grow in any environment (good economy, bad economy, high or low inflation) to lower interest rate beneficiaries (equal weight, value, small-cap stocks).
Astoria was bullish heading into 2024 (interest rate cuts, cyclical upswing in earnings, etc.). That thesis has played out.
Now we also have the ‘Trump Bump,’ which will be good for onshoring/reshoring, smaller cap stocks (due to lower rates), housing, energy, financials (the value trade in general), along with equal weight trade.
From a factor standpoint, tilting away from market cap can be done via the following:
- Value – tough factor, inconsistent risk/reward
- International – very few want to go overseas; carries more risk
- SmallCap – need a rate cut or two, but we acknowledge the bounce last week
- Equal weight – our preferred method to tilt away from market cap, but we acknowledge there are many flavors of equal weight
The number one question we are getting from advisors is, “Is there more left in this rotation?”
I’ve recorded a presentation of Astoria’s thoughts along with some charts in support of our views.
Remember, most wanted to own secular growth stocks for most of this bull market, and most segments of the market were ignored. Nothing goes up forever. Price and valuation matter.
Best,
John Davi
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