Before semiconductor stocks falter, watch their biggest customers—the hyperscalers. When hyperscaler stocks lag, it signals their focus may be shifting from aggressive CapEx to optimizing returns on investment, inevitably slowing down demand for chips and signaling a market rotation.
Companies that streamlined operations during the recent 'rolling recession' are now positioned for outsized earnings growth. As revenue returns in this new expansion cycle, their lean cost structures create significant operating leverage, leading to better-than-expected earnings and fueling a broader market rally.
The market is pricing in overly aggressive Fed policy. As inflation fears subside, rate-sensitive sectors will benefit. Biotech, in particular, offers an attractive risk-reward setup as it historically performs well in falling rate environments and is currently bolstered by a strong M&A cycle.