Trading the Final Stretch 12/23/24
Halftime Report
Deep Dive
Why are the markets expected to see momentum in the tech trade during the year-end?
Momentum is expected to continue in the tech trade due to the setup for 2025, which may see a different market environment. However, the pace of outperformance in tech cannot continue indefinitely, leading to a potential broadening of the market.
What is the Investment Committee's strategy for the tech sector in 2025?
The committee is trimming their overweight position in technology and adding value and cyclical value stocks, expecting a broadening in the market. They believe the outperformance of tech at this pace cannot continue and are positioning for a shift in momentum.
Why does the Investment Committee believe value stocks might outperform in 2025?
Value stocks are seen as oversold, creating a technical bounce-back opportunity. The committee believes that if fourth-quarter earnings reset positively, value stocks could outperform. However, this depends on earnings expectations and the Fed's rate policy.
What risks does the Investment Committee see for the market in 2025?
The biggest risk is earnings growth, with the S&P 500's annualized earnings growth rate over the last 10 years at 8%, while consensus for 2025 is around 14.8%. Additionally, there is uncertainty around Fed policy, tariffs, immigration, and other potential economic impacts.
Why did the Investment Committee trim their position in Broadcom?
Broadcom's stock had risen significantly, and the committee trimmed their position to manage risk and maintain exposure to the tech sector. They still consider Broadcom a core holding due to its strong fundamentals and growth in AI.
What is the committee's view on Netflix's push into live sports streaming?
The committee views Netflix's move into live sports as expensive and risky, with potential technical issues and high rights costs. They believe the stock's price may already reflect optimistic expectations, and they are cautious about further investment.
What is the committee's biggest winner for the year, and why?
Vistra Energy is the biggest winner, up 263%, due to its role as a derivative AI play, powering data centers. The stock is still not considered expensive relative to its growth potential, though it has become an oversized position.
What is the committee's outlook for Adobe in 2025?
The committee remains patient with Adobe, believing the disruption to its core franchise is overdone. They see potential for Adobe to monetize AI and consider the stock undervalued at a 30% discount to its 10-year average.
- Momentum continues in the year-end tech trade, but a shift to value and cyclical value is anticipated for 2025.
- Concerns exist about the sustainability of tech's outperformance and the potential for a correction.
- The possibility of two rate cuts instead of four or elevated rates is discussed in relation to the value outperformance and market broadening.
Shownotes Transcript