What if Big-Tech 6 falls? Will Small-Cap follow?
The seven giants are adjusting, but US stocks are starting to differentiate.
Except for NVIDIA as a necessity, the other companies are facing expenditure, profit, and tests. The performance so far this year, except for Tesla plummeting, the rest have surged and then fallen back.
In the unusual options activity on April 23, the shadows of the small-cap stock $iShares Russell 2000 ETF(IWM)$ and the emerging markets ETF $iShares MSCI Emerging Markets ETF(EEM)$ appeared.
IWM's small-cap stock put option 8% out-of-the-money for next month is relatively neutral, implying that some investors are betting on the performance of small-cap stocks next month;
the emerging markets are a 17% out-of-the-money call for December, indicating investors' bets on other emerging markets' performance this year.
Coincidentally, today $UBS$ also updated its recent trends in tech stocks, with the main points as follows
Downgraded ratings for the "Big 6" tech stocks $Apple(AAPL)$ $Amazon.com(AMZN)$ $Alphabet(GOOG)$ $Meta Platforms, Inc.(META)$ $Microsoft(MSFT)$ $NVIDIA Corp(NVDA)$ from "buy" to "neutral."
This adjustment is not based on overvaluation or concerns about artificial intelligence but rather due to these companies' profit momentum reversing.
It is expected that in the next 12 months, the profit growth of the Big 6 will drop from 42% to 16%. In contrast, profit growth for other tech and non-tech stocks is expected to accelerate.
This indicates that the leadership position of large tech stocks will be replaced by mid-sized tech stocks.
This change stems from the asynchronous profit cycles of different industries during the pandemic. While the decline of large tech stocks may cause disturbances in the short term, UBS maintains an optimistic outlook on the overall market, expecting the S&P 500 index to reach 5400 by the end of 2024.
In other words, the market may adjust, but the driving force behind the short-term adjustment is the Big 6, while other individual stocks may benefit from the adjustment.
Do you agree with this perspective?
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