Big tech, gen AI, Warren Buffett and more: CJ Lawrence explores recent market activity

See what’s impacting the markets and where we’re keeping a close eye on risk and rewards.

Looking at recent market activity, we see several important factors coming together:

• A slowing economy leading to sector rotation from highly appreciated Tech stocks to other parts of the market that benefit from lower rates.
• Geopolitical uncertainty in the Middle East, news about legendary investor Warren Buffett raising cash and trimming his large Apple position.
• The unwinding of the Yen-carry trade (where institutional investors borrowed in Yen, to invest in other markets with higher rates of return).

Additionally, the 10yr treasury yield has come down significantly and is now well under 4% at 3.70% as of this writing. Fed Funds futures are now pricing in a higher probability of a 50 bps cut in September. That is good news for stocks & bonds and puts a floor under valuations.

Source: Factset

We still like technology stocks despite the massive ramp in capex, which is having a temporary negative impact on profit margins for some big data stocks, but bodes well for semiconductor stocks like Nvidia and Broadcom. We are still very early in the buildout of the infrastructure needed to power Generative AI. The new chip Nvidia will ship at the end of the year,called Blackwell, is not only much more powerful but also consumes 25% less electricity. Demand for that chip will continue to be strong.

Source: Factset

We’re fielding questions about making allocation changes. And while we never recommend making meaningful asset allocation changes when volatility is high, we do continue to weigh risk/reward among our sector weights and individual stocks positions. We rebalance the portfolio on an ongoing basis. For example, we have reduced some of our big Tech positions (like Apple and Microsoft) in our model accounts this year already. That said, Tech is still where we are finding most of the secular growth. 

Healthcare has also come down given the massive rise we have seen in both Lilly and Novo. The demand for GLP-1 drugs for weight loss is also just at the beginning.  

In short, August and September are seasonally more difficult months for the market which usually sets up more favorable conditions in the Fall (see below charts of the major averages). It shows there is plenty of technical support at these levels and it may be better to be a buyer of stocks at these levels rather than a seller. The earnings story, especially for the so-called Mag 7 stocks, is still compelling, delivering nearly 30% earnings growth.