Big Tech exit was expected, small cap rally a bonus surprise

The tech-heavy Nasdaq Composite (^IXIC) has seen some quick ups-and-downs in the first hour of Friday trading. On top of this morning's global outages linked to a CrowdStrike (CRWD) update to Microsoft Windows systems (MSFT), investors have begun to rotate out of the Big Tech trade.

Carson Group Chief Market Strategist Ryan Detrick comes onto the Morning Brief to talk about why this new trend may not entirely be "shocking." The small-cap Russell 2000 (^RUT) has climbed by nearly 200 points in the past week and a half alone.

"I think we expected this type of move [out of Tech]. And honestly, guys, we think it's going to continue," Detrick tells Yahoo Finance. "Doesn't mean we hate tech. We're more neutral tech, but we really think these other underloved, underappreciated, and under-owned areas are probably going be pretty good the second half of this year.

Detrick goes on to talk about what the interest rate environment will mean for small and large-cap stocks if the Federal Reserve does follow through with rate cuts.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Luke Carberry Mogan.

Video Transcript

The NASDAQ, I guess pretty much unchanged here this morning, slightly to the downside coming off its worst two day slump that we've seen since October of 2023.

We've seen this rotation out of larger cap tech names, those that have been leading the rally over the last several months and into names that haven't necessarily participated here.

All this being driven by hopes at the rate cut.

So here to discuss what exactly that means, what we could expect going forward.

We want to bring in Ryan Dietrich, he's Kin Groups, a chief market strategist Ryan.

It's great to talk to you.

So first let's just get your reaction to what has played out here over the last couple of trading days.

Certainly, we have seen this rotation out of those larger cap tech names.

Is that a trade that you think is here to stay?

Well, first off, thanks for having me and I agree.

We should all be eating ice cream right now to celebrate National Ice.

I can't believe I can't believe we missed that memo.

We have to yell at somebody.

Yeah, and, and nice.

Naughty by nature reference earlier, Brad, I, I got that.

I got that.

Anyway, let's get into it here.

So I came up with you guys three weeks ago.

I was in person in New York and we talked about the idea of the second half of this year, inflation should get better.

We're probably gonna see some rate cuts.

People didn't really believe that 34 weeks ago necessarily.

Now we've got the better inflation day with the CP I and honestly, the P ce, you put all this together.

Do we expect small caps to do this?

Right?

The past week and a half?

No, but to see some, you know, flows out of large cap tech and into the smaller names into some cyclicals.

That is absolutely how we've expected it like a week ago, a week and a half ago, we released our mid year outlook at Carson Group and we wrote that we said that like the day after it came out, the Russell two went up 1% 5 days in a row, kind of random.

But nonetheless, um you know, I don't think it's a show.

I, I think we expected this type of move, but honestly, guys, we think it's gonna continue, doesn't mean we hate tech.

We're more neutral tech, but we really think these other under loved underappreciated that under owned areas are probably gonna be pretty good.

The second half of this year, Ryan, you know, I, and forgive me, I mean, I was out in, in Orville, Ohio, the Mecca of Spreads Jams, Jellies and Uncrustables for the past couple of days.

But I did see a notification come across on my phone about the level to which we were seeing slippage and nvidia, which was what a lot of people was tracking.

We're tracking as part of this broader tech slippage.

And we're essentially now back to some levels where insiders after insiders were, you know, doing some profit taking.

We're, we're back to some of those markers.

Is there more slippage ahead that you believe?

And, and if so where does that rotation then go into from some of that profit taking?

Now, a great question there.

And we do think there could be a little more slippage.

I mean, the video, I can't really give recommendations on individual stock, but we know these, these large companies are making a lot of money.

So this is not a 1999 2000 moment in our opinion.

At the same time, when you see the fact that listen, I think it's like 2.7 cuts are expected from the FED.

We think it's more like three.

We think inflation is gonna keep getting better.

What does that mean?

Well, if yields go a little bit lower, we know that it's all about the debt finance when it comes to small caps because large caps have a lot of that debt finance.

So keep this simple yields go lower fed cuts.

We still think small caps midcaps.

But also we like industrials and financials here and financial has been a little rocky.

Some of those broker dealers had some rough news lately, but still we think financials and overall industrials is we don't have a recession.

Just look at this week.

Right.

This is this week.

Um, you're eating a good jelly.

I'm from Ohio.

So I know all about the jelly in Ohio there.

But when you think about it just this week, what have we seen retail sales came in better than expected?

The control group without getting too in the weeds here was really, really solid.

Then industrial production saying listen, manufacturing is doing just fine also.

So we do not see a recession.

We see those rate cuts, industrial financial, small and midcaps in some areas.

We're overweight in the money that we run for our Carson partners.