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The Magnificent Seven Mania Gives Way to a Something-Else Rally

‘This market wants to rotate, and it’s starting to happen,’ RBC’s Calvasina says

Big Tech’s rocket ride has slowed a bit, and Wall Street’s rally — after some fits and starts — is starting to broaden out.

Photographer: Michael Nagle/Bloomberg
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Welcome to the Bloomberg Surveillance newsletter, a daily look at the best interviews and insights from Bloomberg Television's flagship morning show co-hosted by Jonathan Ferro, Lisa Abramowicz and Annmarie Hordern. Sign up here if you’re not yet a subscriber.

‘Commodities, people’

It turns out that the Nasdaq 100’s highest-flying stocks are susceptible to gravity after all. Under the Don’t Look Now heading, Big Tech’s benchmark index finished last month trailing the S&P 500 Equal Weight Index, which corrects for the Magnificent Seven’s outsized market caps.

The lesson may seem simple, but basic truths have been in short supply and head fakes have been abundant in a year in which US economic growth keeps upending all the textbook lessons about what should happen when the Federal Reserve cranks up interest rates.

Surveillance guests spent the morning talking about where the new action is. Lori Calvasina at RBC Capital Markets said Big Tech’s 2023 boom made sense at the time because of its bulletproof balance sheets in the wake of Silicon Valley Bank’s collapse. Now, cheaper stocks like materials, financials, energy and utilities are having their day, she said.

“I think this market wants to rotate, and it’s starting to happen,” said Calvasina, who nudged up her year-end S&P 500 target to 5,300 last week from 5,150. For the record, February’s Nasdaq 100 advance was 1.2%; the S&P Equal Weight was up more than 4.2%.

“Earnings growth is decelerating,” she said. “But this is not a stupid market by any stretch.”

With Lisa off today, Calvasina was one of three Surveillance guest hosts, along with Jay Pelosky of TPW Investment Management and Academy Securities’ Peter Tchir. Amid the endless scrutiny of Fed Chair Jerome Powell and when rate cuts might get going, they were all constructive on asset-class stories outside of last year’s big winners.

“Very few people understand that commodities are the best performing asset class in the world year to date,” Pelosky said. “Everyone wants to talk Mag 7 — Mag 7, Mag 6, Mag 5. Commodities, people. It’s really basic. It’s supply and demand. You don’t have to figure out AI. It’s just simply buying the stuff that people still use.”

Overnight data from China suggested that the manufacturing rebound there is finally taking shape, which is positive for commodities. And Columbiathreadneedle’s Ed Al-Hussainy noted the improving prospects for US growth as well.

“This is a fantastic backdrop for the commodity space,” he said.

Tchir wasn’t as enthusiastic as Pelosky about the entire complex — notably, he was skeptical about softs — and said he preferred to place the sector via equities, not commodities themselves. Energy is likely to be a winner (the S&P 500 energy stocks popped 10% last month), he said, and there is froth in the Nasdaq 100, he said.

“People are getting tired of the same story,” he said.

Jobs or CPI?

The Fedspeak calendar is crowded. So is the daybook for economic data. So which matters more — Friday’s payrolls print or CPI next week, on April 10?

Most guests came down on the side of CPI. Tchir was a contrarian, saying he thought the Fed was paying more attention to jobless reports.

Powell himself speaks again Wednesday. Bill Dudley, the former New York Fed president and Bloomberg Opinion contributor, said he was struck by Powell’s reluctance last month to engage on the question of US financial conditions, since that has been a favorite topic for the Fed chair.

“My feeling is, monetary policy is not exerting that much strain on the economy and that is why the Fed has been on the path of having to stay higher for longer,” said Dudley, who has a column today on persistent risks in the US banking system.

Trump topping out?

For Americans already tired of the long 2024 election, the good news from Pangaea Policy’s Terry Haines is that the third phase of the campaign has already arrived. The bad news is that there are five phases.

He teased out an important clue in the recent headlines about President Joe Biden’s fundraising advantage over Donald Trump: There may be a long way to go until November, with the conventions and the stretch run ahead, but Trump is showing signs of topping out, Haines said.

Trump’s more-extreme rhetoric highlights his challenge, Haines said, because this year’s Republican primary results show an ongoing rift within the GOP and little progress for Trump in winning over independents.

“He needs both of those to be strong for him in order to win,” Haines said. “He’s not getting them right now.”

Haines’ take on Biden’s prospects helped offer a framework for TPW’s Pelosky a chance to repeat his bold call afterward: “As I’ve said on this show, I believe Joe Biden will win by a landslide.”

Haines wasn’t going there. Pundits once predicted that Hillary Rodham Clinton would beat Trump, too, he noted. Biden needs to keep his narrow 2020 Electoral College edge (remember, Haines said, the national popular vote isn’t what matters). Still, one big difference from 2016 is that Trump’s novelty has worn off, Haines said. “People are getting tired of the act.”

Eyes on Rafah

Israel’s planned incursion into the Gaza city of Rafah, a bastion of Hamas holdouts, is shaping up as different than the combat elsewhere in the war, according to Norman Roule, a former senior US intelligence official.

Roule offered that analysis ahead of a reported video call unfolding today between US and Israeli officials. As related by Axios, the call is being led by civilian officials, not military leaders, Roule said. That suggested to him that the discussion is simply around Israel’s relocation of civilians out of the line of fire and not whether the Rafah operation goes forward.

Israel’s war against Hamas has smashed much of Gaza’s infrastructure to pieces.Photographer: Ahmad Salem/Bloomberg

Those evacuations would be centered on emptying out Rafah’s built-up areas, home to Hamas’ tunnels, and not the tent cities used by refugees, Roule said. “Hamas’ primary defense is to fight from behind civilians, because civilian casualties create international pressure that restrains Israel,” he said.

Academy Securities’ Tchir said the firm’s advisory board of retired generals and admirals has sized up the Gaza combat as akin to the bloody US struggle for Fallujah, Iraq, in 2004 — only worse. Unlike Gaza, civilians there were able to flee before full-fledged fighting erupted, Tchir said, and the Marines didn’t face a tunnel network sheltering diehard defenders.

“It’s going to be a long and probably brutal process, unfortunately,” Tchir said.

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