LIVE MARKETS-Beyond the froth, hopes for broadening

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BEYOND THE FROTH, HOPES FOR BROADENING

In an interview reviewing the second quarter, Robert Phipps, director at Per Stirling Capital Management said that under the impressive equity market rebound, "closer inspection shows it was rather narrowly based and somewhat speculative in nature."

In terms of Q2 leadership, Phipps pointed to strength in mega-cap growth stocks such as Microsoft MSFT.O, Nvidia NVDA.O, Amazon.com AMZN.O, Google's parent Alphabet GOOGL.O, Facebook parent Meta Platforms META.O and Netflix NFLX.O.

And he also pointed to big banks - JP Morgan JPM.N, Bank of America BAC.N and Wells Fargo WFC.N which benefit from a lighter regulatory environment.

Phipps also highlighted gains in smaller, more specialized sectors like nuclear energy, gold miners, defense stocks, and artificial intelligence-related stocks.

But he said "much of the second quarter also had a somewhat frothy feel to it, with lower quality and more speculative asset classes representing many of the top-performers."

In that department he cited crypto-related stocks, quantum computing-related stocks, meme stocks, non-profitable technology stocks along with high beta stocks and some of the most heavily-shorted stocks.

This is because individual investors have been "buying every dip in the market," according to Phipps.

"Individual investors tend not to worry as much about valuations, which are extraordinarily high," he said adding that "it's a momentum market and a fear-of-missing out market."

Of course, U.S. indexes have lost a little luster this week with a tariff induced sell-off on Monday. But Phipps still sees narrow leadership and "some signs of froth."

When investors face uncertainty, they lean heavily toward big companies that have, what Phipps calls a "wide moat" along with the specialist areas.

But he does expect that market leadership "will likely broaden out toward the end of the year," once the tariff uncertainty passes, the Federal Reserve cuts rates, and with fiscal stimulus from the administration's U.S. budget plan also helping.

Right now though, "as long as we have this giant tariff uncertainty out there, it's going to be the mega cap growth stocks and particularly growth over value. Value looks awful other than banks," he said.

(Sinéad Carew)

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