On Friday, the stock market experienced a widespread decline following the release of a disappointing July jobs report. This downturn put a halt to the recent trend of investors moving away from Big Tech stocks and towards smaller, undervalued stocks. The shift had been prompted by positive inflation reports that had raised hopes of a potential rate cut in September.
According to experts, the market may have been overly optimistic about the tech sector, setting itself up for a letdown. The subsequent selloff is seen as a normal correction process by Sam Stovall, the chief investment strategist at CFRA Research. Stovall pointed out that small- and mid-cap stocks make up only about 8% of the market, a fraction compared to the significant weight of Big Tech stocks. This suggests that the rotation into smaller stocks was bound to face challenges.
Stovall used an analogy to illustrate the difficulty of the rotation, comparing it to trying to drain one of the Great Lakes into a backyard swimming pool. The implication is that the market dynamics and the dominance of Big Tech stocks make it challenging for a significant shift to occur smoothly.
