The Market Rotation Trap; Cyclicals Can't Outrun Earnings Forever
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JR ResearchInvesting Group LeaderFollow5ShareSavePlay(10min)Comments(3)SummaryRecent market rotation favors basic materials and industrials over tech and communications, with cyclical upswings and diversified growth drivers underpinning sector outperformance.XLB benefits from robust demand for energy storage and power constraints, but trades at 20x forward earnings, suggesting optimism is priced in and cyclical risks remain.XLI offers more stable forward EPS and diverse exposure, but its >25x forward P/E approaches post-COVID peaks, requiring conviction in continued economic strength.Despite current rotation, the Magnificent Seven's resilient earnings and AI-driven growth suggest the market may ultimately revert to tech leadership as rate cuts and infra spending support durable growth.Looking for a helping hand in the market? Members of Ultimate Growth Investing get exclusive ideas and guidance to navigate any climate. Learn More » Douglas Rissing/iStock Unreleased via Getty Images Market Rotation?
Should You Partake? The rotation theme is now gaining much attention among investors. The market has also rewarded the theme, and that doesn't just apply to rotation within the US market, but also intoThis article was written byJR Research46.35K FollowersFollowJR Research is an opportunistic investor. I was recognized by TipRanks as a Top Analyst, and also by Seeking Alpha as a "Top Analyst To Follow" for Technology, Software, and Internet, as well as for Growth and GARP. I identify attractive risk/reward opportunities supported by robust price action to potentially generate alpha well above the S&P 500. My picks have consistently demonstrated market outperformance over time. My approach combines timely and sharp price action analysis with fundamentals as my foundation. I also tend to avoid overhyped and overvalued stocks while capitalizing on battered stocks with significant upside recovery possibilities. I run the investing group Ultimate Growth Investing which specializes in identifying high-potential opportunities across various sectors. My main ideas revolve around stocks with strong growth potential, and also well-beaten contrarian plays. I designed the group for investors seeking to capitalize on growth stocks with solid fundamentals, robust buying momentum, and appealing turnaround plays to generate alpha consistently. Learn moreAnalyst’s Disclosure:I/we have a beneficial long position in the shares of QQQ, XLK, GOOGL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.