The latest 13-F filings are starting to trickle out (the big ones come next month), showing on a lagging basis how some of the world’s largest investment managers have allocated their money.
But it’s worth revisiting a filing from the first quarter, when Stanley Druckenmiller’s Duquesne Family Office loaded up on small caps, with a 15% chunk of his portfolio going to call options on the iShares Russell 2000 ETF IWM.
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Granted, George Soros’s former right-hand man might have sold this position, or perhaps it expired before he could profit. But if he held on, Druckenmiller invested ahead of a historic move that’s being called the Great Rotation, which has been playing out since consumer price index data released Thursday cemented expectations the Fed will cut rates by September.
Andy Constan, who runs the macroeconomic and commodity research firm Damped Spring, points out over the last five trading sessions, the Magnificent Seven market cap dropped by $349 billion, while the Russell 2000 rose by $324 billion.
Over that same timespan, the Russell 2000 RUT has gained 11.5%, which is three standard deviations above its long-run mean, according to DataTrek Research. “The scale of these recent gains strongly suggests this reallocation is not yet over,” they say.
That’s also the view at UBS, and in fairness their strategists were saying that a rotation was going to come well ahead of this surge.
The UBS team is saying that when the market experiences a significant one-day rotation from large to small caps — they measured the top 10 stocks of the S&P 500 versus the rest — the trend continues for another four weeks.
“With mega cap earnings expected to slow, and small caps lagging so severely YTD, we expect these trends to continue,” they say.
The market
U.S. stock futures ES00 NQ00 were lower, as tech futures in particular tumbled. The dollar USDJPY tumbled against the Japanese and gold futures GC00 hit record highs.
Key asset performance | Last | 5d | 1m | YTD | 1y |
S&P 500 | 5667.2 | 1.62% | 3.28% | 18.81% | 24.42% |
Nasdaq Composite | 18,509.34 | 0.43% | 3.62% | 23.30% | 28.95% |
10-year Treasury | 4.172 | -11.80 | -5.50 | 29.11 | 41.79 |
Gold | 2477.7 | 4.20% | 5.69% | 19.59% | 25.11% |
Oil | 80.8 | -1.95% | 0.02% | 13.28% | 7.18% |
Data: MarketWatch. Treasury yields change expressed in basis points | |||||
The buzz
John Williams, the New York Fed president, told the Wall Street Journal in an interview that a rate cut could be warranted, but that he would first like to see “more data” — which suggests a July rate cut is not likely. Richmond Fed President Tom Barkin and Fed Gov. Christopher Waller are also due to speak.
Housing starts data showed them exceeding expectations. Industrial production, and in the afternoon, the Fed’s Beige Book of economic anecdotes, also are due for release.
ASML ASML and Tokyo Electron shares JP:8035 slumped on a report in Bloomberg the U.S. may further tighten restrictions on sales to China, as ASML also guided for third-quarter sales below expectations.
Former President Donald Trump told Bloomberg Businessweek that he wasn’t planning to get rid of Fed Chair Jerome Powell — “especially if I thought he was doing the right thing.”
In the same interview, he said Taiwan — home to key contract microchip maker Taiwan Semiconductor — should pay for its defense. Microchip stocks including Nvidia NVDA, which is a Taiwan Semi client, fell in premarket trade.
Spirit Airlines stock SAVE is tumbling after the airline lowered revenue estimates, citing competition and capacity challenges. Spirit rival United Airlines UAL reports after the close of trade.
Five Below shares FIVE slumped as the bargain retailer issued a downbeat outlook and its CEO exited.
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Top tickers
Here are the most active stock-market tickers as of 6 a.m. Eastern.
Ticker | Security name |
GME | GameStop |
NVDA | Nvidia |
TSLA | Tesla |
TSM | Taiwan Semiconductor Manufacturing |
AAPL | Apple |
AMC | AMC Entertainment |
ASML | ASML Holding |
AMD | Advanced Micro Devices |
PLTR | Palantir Technologies |
DJT | Trump Media & Technology |
The chart
Courtesy of Bank of America’s monthly survey of global fund managers, inflation is no longer seen as the top risk to the market — “geopolitical conflict” is. (Inflation is still the second-highest risk, at 22% vs. the 26% who say geopolitics.) According to the survey, 87% expect lower rates, 81% a steeper yield curve, and 62% predict a minimum of three cuts by the Fed over the next 12 months.
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