Markets are breathing after an intense week, and in preparation for inflation data on Wednesday, with high expectations for rate cuts. In the meantime, earnings for the magnificent 7 are out with the exception of NVDA (Aug 28th), and part of the rotation we are seeing in the market may be due to a “slowdown” in earnings for these companies, as they law of big numbers kick in and explosive growth transitions to high growth. As you can see in the chart below, this selected group grew earnings at 50ish% in the 4Q23 and is now expected to grow at 30%, which is still an incredible rate of growth but may not be enough to justify high valuations, particularly with this level of rates. That’s what pushing investors to rotate portfolios into something less exposed to slowdown, or more defensive, as the odds of an economic recession rise again.
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