Mag 7 earnings loom: Time to look elsewhere?

Apple's anticipated earnings report is likely to highlight ongoing difficulties, as analysts project a 4.5% YoY revenue decrease to US$90.5 billion. This decline is primarily attributed to weaker iPhone sales and softness in the Chinese market. FactSet analysts predict a 9.8% drop in iPhone revenue and an 11% decline in iPad sales, while the services segment is expected to grow by 10.6%.

If the remaining Mag 7 members also underperform, it could exacerbate the further decline in the US stock market. In such an environment, investors might adopt a more cautious attitude towards the Mag 7. Besides the big tech, what other investment opportunities are available in the current market?

Market is experiencing a rotation that investors are now shifting their focus from big tech to small-cap stocks. Analysts expect that small-cap and other high-risk assets will benefit from the anticipated interest rate cuts in Sep. According to the head of small and mid-cap stocks at Jennison Associates, rising interest rates have been a significant hurdle for small-cap stocks. However, a downward cycle in interest rates could relieve this pressure, potentially benefiting small enterprises struggling with higher borrowing costs.

As of the close on July 26, the Russell 2000 Index, which tracks small-cap stocks, has risen 10% over the past 14 trading days, outperforming the S&P 500 Index by 13% and marking the best 12-day performance in its history. According to Bloomberg data, the ratio of the market-to-sales value of small-cap stocks to the S&P 500 Index is at its lowest level in nearly 20 years.

Gold has risen over 15% in 2024. The "Big Short" traders, famous for shorting the real estate market during 2008, now suggest that investors should buy more gold for long-term holdings. They state that gold is one of the most crucial long-term investments in their portfolios and are focusing on this strategy. They believe this is primarily due to the rising debt levels in the US, which could lead to a significant devaluation of the dollar in the coming years.

J.P. Morgan analyst Gregory Shearer believes that gold is in a favorable position for a rebound. In his note on July 24, he mentioned that geopolitical tensions, rising US deficits, central bank reserve diversification, and inflation hedging are driving up gold prices. These factors are likely to persist regardless of the election outcome but could be further amplified if Trump comes back.

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