Is tech still the top dog? Strategist talks investor trends

AI has been a significant driver for markets (^DJI, ^IXIC, ^GSPC) this week coming off of Apple's (AAPL) "Apple Intelligence" showcase at its Worldwide Developers Conference (WWDC). The major market averages have calmed Friday morning, all opening the session lower as the Dow Jones Industrial Average even falls by over 300 points.

Charles Schwab Head Trading & Derivatives Strategist Joe Mazzola breaks down the sectors where is starting to see more investor interest and pullbacks in.

"Even though there was a slight uptick in the net buys over sells [in May], there was a bit of a churn underneath the surface when it came to the dollar amount," Mazzola says. "So, you know, when I see something like that, you know, that kind of stands out a little bit. It basically says that there were more net buy buyers and sellers, but some of the larger accounts started to maybe trim some of those positions" such as the headlining Magnificent Seven tech stocks.

Mazzola also comments on when he believes the Federal Reserve could begin to cut interest rates this year ahead of the 2024 presidential election.

In its forecast for the second half of 2024, JPMorgan Asset Management predicts the stock market rally to broaden out from the tech sector, namely the players in the Magnificent Seven.

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

Stocks moving lower this morning following a record setting close for the S and P 500 also the NASDAQ.

We have certainly seen this renewed excitement surrounding a handful of tech names this week which has really driven the broader markets to those all time highs.

We're seeing some of the give back here in early trading today.

So what is the signal that's ahead we want?

And Joe Mazzola, he is Charles Schwab's head of trading derivatives strategist, Joe I I it's great to see you.

So let's talk about where things stand today.

We certainly have seen a lot of excitement surrounding A I that really drove the markets, the broader markets to record highs this week.

How are we set up looking ahead to the second half of the year?

Yeah.

Well, you talked about uh the market bread and, and what we're seeing there.

So, you know, you guys talked about bifurcation.

I would use another word as well.

Dispersion.

Uh I, I think they're, they're similar in this context just because you have a few generals that continue to lead the charge, but uh underneath the surface, that's not always the case.

And and especially right now, you know, we're seeing it with our, with our clients and, and what they're buying.

Uh we released our May a report.

Well, we saw that, uh even though there was a slight uptick in the net buys over sales, there was a bit of a churn underneath the service when it came to the dollar amount.

So, you know, when I see something like that, you know, that kind of stands out a little bit.

It basically says that there were more, more net buy buyers than sellers, but some of the larger accounts started to maybe trim some of those positions and just like you talk about uh you know, tech being the leaders, I mean, our biggest buys for that last month that may were uh NVIDIA A MD, Tesla, Amazon Microsoft.

So, you know, those those are holding strong.

Uh but when you're looking at maybe the mag seven, maybe you need to start talking about the fab four because even within the mag seven, you're starting to see some of that dispersion.

Yeah, even if they're trimming positions in some of those outperforming names, where is the rotation seem to be into?

Yeah.

Well, you guys were just talking about our age.

I mean, we've seen a, a decent amount of selling in uh discretionary, right?

So that's where the the selling has been discretionary, uh communications and financials.

Um When we look at the sector level, we didn't see anything that really kind of stood out at the overall level.

No, I will say this though.

This is one of those one of those months where we see a little bit of conflicting reports at the millennial level, right?

So at the overall uh client level, we didn't see a big buying in any particular sectors.

But at the millennial level, that's where we did see some interest, that's where we saw some interest in it, discretionary and health care.

So we did see some money, money moving into that.

But as I mentioned, it, it tends to kind of move towards uh the, the bigger market cap names.

And I think that's gonna kind of be the, the story that we look at going forward until we really see that the fed is starting to ease its uh its interest rate policy.

You know, that we got the dot plot this week that, that talked about maybe one cut this year, that's what they're aiming at right now.

So this might be something that carries forward through the summer.

So when do you expect the fed to cut?

Well, I mean, you know, if you look at what the market participants are saying right now, in terms of the fed funds futures or the CME fed was tool.

Uh, they're looking at either September or December, potentially one cut.

I think we're probably in the September camp and if that's the case, uh, you know, politics aside, right, I think the FED is in a position now where they're starting to see some softening data.

We're starting to see, uh, you know, not, not withstanding the non-farm payrolls, which as we know is a, is, is a bit of a lagging indicator.

We're starting to see more softness and jobless claims.

We're starting to see more softness in new hires.

So, you know, that is really the second part of the Fed's mandate is employment and employment is really starting to kind of, you know, rotate down a little bit.

And even some of the soft data that we've seen over the last couple of months has started to push down if you can get the inflation numbers under control, which it seems like right now, at least these last couple of data points have shown uh we're moving in the right direction.

So that's kind of pulling forward that expectation where, where do you think?

And, and especially as we're considering the timing of when those rate cuts could potentially come forward.

I mean, that puts us uh within the ballpark of when the election is taking place both on the front end and on the back end there.

So how might invest sentiment shift going into that event?

Well, if you want a good indication of that, look at the Vics futures, right?

If you look at the Vics futures right now, uh you know, we're basically around 13 on the front end where you see that that spike a little bit is in the October future and that indicates, uh you know, some indecision around the election results.

So, you know, I, I think one thing to take into consideration when you're looking at the elections, it's not necessary necessarily, you know, what happens in the oval office.

It's really more what happens in Con Congress that can kind of push uh the, the markets one way or the other.

So, you know, I think we get fixated on, on, on who's going to be the president, but I think we also need to pay attention to what's happening in the legislative branch as well.

Joe Mazzola, who is the Charles Schwab head trading derivative strategist.

Thanks so much for taking the time this morning.

Joe.

Thank you.