A Confusing, Rotating Market
The current market action is genuinely confusing, and on any given day it can feel contradictory — as if investors are being told to buy tech and not buy tech at the same time. The whipsaw is not confined to technology. When semiconductors rise, the money funding that move is being pulled out of healthcare and consumer staples. The result is a constant rotation in which certain stocks are up seven percent while others are down five percent on the very same day.
The behavior of the Magnificent Seven has been one half of this rotation: the sell-off in those mega-cap names has been overdone. The other half is a group of names like Micron and the other memory stocks, which became very vulnerable precisely because they had run up so far so fast. The image that captures the dynamic is a ferris wheel — money rotating from one part of the market to another.
The Core Strategy: Take a Longer-Term Time Horizon
The key to investor success from this point is to take a longer-term time horizon rather than getting caught up in day-to-day trading. Nothing goes in a straight line, so investors should be prepared for volatility. The right approach is to assess where the market is now, form a view of where it will be a year from now, and position to take advantage of that gap. In short: turn down the volume on the daily noise. A stock may go lower in the short term, but over the long term the present moment represents a very good opportunity to buy great businesses at attractive prices.
The Case for the Hyperscalers and Mega-Cap Tech
The hyperscalers and mega-cap stocks were in the news every day and beloved by everyone a year ago. They are now roughly a third cheaper. Several of them are selling at 18 to 22 times earnings — a valuation level they generally have not traded at in a long time. The long-term outlook for Microsoft, Amazon, Meta, and Apple remains very good, and they can now be bought at great prices.
There is a behavioral irony at the heart of this. For years investors asked why they shouldn't buy more of these stocks, even though plenty were already owned — but back then they were paying 32 times earnings. Now that those same companies are available at 18 to 20 times earnings, people are less interested, simply because the prices have fallen. That reversal of sentiment is exactly the opportunity. The significant shift in sentiment against the Mag 7 should be used as a chance to build positions in good long-term franchises at attractive prices.
Apple as a Specific Opportunity
Apple's recent action illustrates the point. It had its worst day in about a year, selling off sharply on news of price hikes for the MacBook and iPad, with a warning that more increases may come. Is that sell-off a buying opportunity? Yes. This is a momentum market — a market "on steroids." When investors want into a stock they push it up enormously (as seen in Micron), and when they want out there is no bottom. Taking the longer perspective, Apple is going to be a strong ultimate player in AI. There will be a move toward the "edge," meaning people will need to buy more phones to use AI more efficiently. Apple, which has performed well as a stock, just gave back roughly three months of return in a single day — and that should be used as an opportunity.
Was the price-hike news actually a surprise? No. It is not terribly new and should not have surprised anyone. Apple's costs for DRAM chips have been rising, and the company is simply passing a little of that through to customers. A week earlier, with the stock at 310 or 320, there was less enthusiasm; at today's price it is a very good place to start a position. There was additional Apple news as well: the company may be looking to Chinese memory makers to help with production. For the week the stock was down 7.5 percent, and for the month (as of June 26) down almost 12 percent — and that decline is viewed as an opportunity.
The Caution on Semiconductors and Memory Names
The treatment of the semiconductor and memory group is deliberately different. A number of semiconductor companies are already owned, and the run with them has been great — but new money should not be thrown at them now. Expectations for the group going forward are much more cautious, simply because these stocks have delivered a year, two years, even five years' worth of returns in less than three to six months.
Should an investor who already holds these names step in further or trim? The advice is to scale back modestly — not on a down day, but on the "crazy" up days when everyone is excited and stocks are jumping 10 or 15 percent in a session. If you judge a stock's price to be full over the next two years, take a little profit into that euphoria. The reasoning is structural: you will never know in advance when these stocks top. They typically begin to fall about six months before the underlying business peaks, and you only recognize that peak in hindsight. So it is prudent to take some profits off the table into the strength.
Valuation reinforces the caution. Many of these names are selling at 20 to 50 times earnings based on earnings two and three years out. Semiconductors are fundamentally a cyclical, feast-or-famine business. Right now it is a feast — but eventually it will slow down, and the stocks will fall well in advance of that slowdown. Buying something at 50 or 80 times earnings is a formula for not doing well over the next two to three years.
Opportunities Beyond Technology
A crucial point is that there is a whole market beyond technology, even though the market's attention is heavily concentrated on tech. Several non-tech picks stand out.
Consumer Staples: Pepsi and Constellation Brands
The consumer staples group has faced a tougher near-term fundamental outlook, but it contains long-term winners available at great prices. Why Pepsi? It is a really well-managed company, paying a dividend north of 3.5 to 4 percent while you wait, trading at 16 times earnings. After two or three years of struggling with a slowdown, the company is doing the right things to reposition for slightly accelerating revenue growth. Critically, when the tech side sells off, money flows back into consumer staples — and Pepsi is one of the places it will go.
Why Constellation Brands? The company has had a very difficult time recently amid a slowdown in beer sales, but it is managing through it and gaining share. It pays a very good dividend and trades at just 12.5 times earnings. For an investor with a longer time horizon, this is a good consumer-product company at a very attractive price, and a long-term winner in its space.
TE Connectivity
TE Connectivity is a technology play that provides semiconductors into everything happening in the hyperscaler data centers and in automobiles. The stock has had a significant pullback on concerns that there will be more fiber than copper. That decline is seen as a great entry point: the stock trades at 16.5 times earnings, the business is growing nicely, and the price is really attractive. The expectation is that one day the company wins one or two hyperscaler contracts and the stock jumps 20 percent.
Automated Data Processing (ADP)
ADP has sold off on AI concerns, but the company is navigating AI well. It is a dominant player in payroll. Can AI simply replace a payroll provider? Not easily. Payroll must be 100 percent accurate, and it is a very complicated business that customers cannot readily move out of into a do-it-yourself AI solution. Meanwhile, investors collect a great yield while waiting, at a fairly attractive valuation.
The Bottom Line
The through-line across every recommendation is the same discipline: ignore the day-to-day noise, lean into changes in sentiment rather than chasing them, buy quality franchises when fear has made them cheap, and trim cyclical winners into euphoria. The Mag 7 sell-off, the overheated memory names, and the overlooked staples and industrials are all expressions of one rotating market — and the way to win in it is to position today for where the market will be a year from now.
