- Historical seasonality suggests markets could strengthen through August despite recent weakness.
- Leadership is beginning to rotate from growth stocks toward value sectors such as healthcare and financials.
- Improving earnings in smaller companies could support renewed strength in mid-cap and small-cap stocks.
Seasonal trends point to a changing market leadership
Markets have entered a period that often brings increased investor attention to seasonal trends and sector rotation, with recent market action suggesting leadership may be beginning to broaden beyond technology.
In this week’s Markets in Motion, Bruce Campbell examines historical seasonality across both the S&P 500 and TSX. While markets experienced weakness through June, long-term patterns suggest equities have historically performed well into August before entering a more volatile period later in the year. Campbell stresses that seasonality should be viewed as a long-term guide rather than a prediction of day-to-day market movements.
Alongside seasonal trends, macroeconomic indicators also point to a potentially supportive backdrop. Referencing research from Hedgeye, Campbell notes that the current economic environment could transition back toward conditions that have historically favoured stronger equity performance over the coming months.
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Perhaps the most notable development is the ongoing sector rotation. Technology remains the market leader, but its relative strength has begun to moderate, particularly among semiconductor stocks. At the same time, value-oriented sectors including healthcare and financials are showing improving momentum.
Campbell also highlights the potential for mid-cap and small-cap stocks to regain leadership after an extended period dominated by mega-cap technology companies. With earnings remaining supportive, a broader market rally could emerge if sector rotation continues through the second half of the year.
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