- Markets expect the Federal Reserve to leave interest rates unchanged at its July meeting, while pricing shifts further out remain sensitive to incoming data.
- High-momentum stocks have suffered a sharp reversal, with semiconductor names moving from market leadership toward weakening or lagging positions.
- Previously pressured Canadian software stocks and gold equities are beginning to show early signs of improving relative momentum.
Investors look beyond semiconductors as leadership shifts
A sharp reversal in momentum stocks is accelerating sector rotation as investors await the Federal Reserve’s latest interest-rate decision.
In this week’s Markets in Motion, Bruce Campbell examines market expectations showing a strong probability that the Fed will leave rates unchanged at its July meeting. Longer-term pricing remains less certain, with expectations continuing to shift as investors assess inflation, economic growth and incoming data.
This article is being disseminated on behalf of Stonecastle Investment Management, a third-party issuer and is intended for informational purposes only.
The more striking development is the breakdown in momentum investing. Campbell highlights that strategies with some of the strongest five-year returns have become among the weakest performers this month. Meanwhile, market-neutral strategies that struggled over the longer term have recently moved to the top of the performance rankings.
The Goldman Sachs High Momentum Index has also experienced a rate of change rarely seen outside major periods of market disruption, including the 2008–2009 financial crisis and the collapse of the technology bubble in 2000.
Semiconductor stocks are reflecting that shift. Most major names have moved into the weakening quadrant on relative rotation charts, with several approaching lagging territory.
At the same time, Canadian software companies including Shopify, Lightspeed and Constellation Software are beginning to recover after a difficult year. Gold equities are also showing early technical improvement, although prices have not yet confirmed a sustained move higher.
Campbell says investors should continue watching where capital is moving next rather than relying on the market’s previous leaders.
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