Earnings season is well underway, and Big Tech stocks are dominating.
Strong earnings from Big Tech companies have pushed the Nasdaq Composite Index to all-time highs.
The reality is, many companies aren’t playing a part in the race to all-time highs.
The top-five biggest companies in the S&P 500 Index make up 26% of the market. Their outperformance is painting a picture that all is well for stocks since investors often look at the index to assess the strength of the stock market.
A strong market isn’t the case.
Wall Street has painted a grim picture for stocks in general. The 12-month earnings estimates for the equal-weighted S&P 500 have fallen 41% since March.
This is much worse than for the S&P 500 itself, which is weighted by the size of the companies:
S&P 500 (Blue) vs. Equal-Weighted S&P 500 (Red)
(Source: Bloomberg)
Expectations for the market as a whole are bad.
But not all stocks will be feeling the pain. And I’m not talking about Big Tech either.
COVID-19 and the migration to work-from-home (WFH) and stay-at-home (SAH) life has changed everything we know about how the economy and stock market function.
Trend shifts that were already underway have accelerated. The global pandemic has been a catalyst for innovation, creating a huge profit opportunity for investors.
More Disruption Than Ever Before
Ian King and I believe that this catalyst has paved the way for a new era: the Great American Reset.
During this era, more disruption will be seen than any other in history. In fact, we’ve already begun seeing it reflected in stock prices.
The most obvious winners so far have been WFH and SAH stocks. Cloud computing, fintech and e-commerce are three sectors that investors have been bidding up:
3 Reset Sectors vs. Equal-Weighted S&P 500
(Source: Bloomberg)
These sectors have crushed the market since stocks hit lows in March.
The Real Winners of the Great American Reset
The thing is, not all of the WFH and SAH stocks will be winners over the long run.
Not every company has a competitive advantage like the stocks Ian and I recommend in our Automatic Fortunes service.
We’ve recommended several companies that are currently seeing an acceleration in long-term growth. That’s why we continue to crush the market.
Regards,
Research Analyst, Automatic Fortunes