“The Big Rotation”

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JOIN OUR FREE LIVE TRADING SESSION!]( Hello investor, “The Big Rotation” Stocks jumped due to two key catalysts that could lead to friendlier fiscal policies: (1) upcoming interest rate cuts and (2) Donald Trump taking the White House. Human and UnitedHealth Group were an example. Both stocks jumped yesterday because investors believe that a Republican administration will lead to fewer cost pressures. Trump’s pro-crypto stance also sparked a monster rally in Bitcoin. However, Peter Boockvar at The Boock Report doubted that these “Trump trades” are sustainable. - “Everyone is passing around their favorite Trump trades — but I think we’ve seen over the past century that stock market moves are more random than what a president can dictate,” said Peter Boockvar at The Boock Report. Peter Boockvar at The Boock Report (Photo: CNBC) Over the long term, the market will follow earnings growth. With the market at all-time highs, investors will pay attention to see if companies can deliver strong earnings growth as the earnings season ramps up. - “Investors only seem to care about valuations when the 10-year breaches 4.5%,” De Sena Trennert wrote on Monday. “With the bond market currently quiescent, we believe investors will be looking closely at 2Q earnings to determine whether the market will continue its upward momentum or take a breather to consolidate its gains.” Right now, Wall Street expects the S&P 500 to grow its EPS by 11% to 13%. The key is other sectors. Big Tech companies were responsible for the bulk of EPS growth in the last few months, but they are expected to post slower growth rates in the current quarter. On the other hand, non-tech sectors are poised to bounce back. If they could deliver good results, it might serve as a new catalyst to keep the rally alive. Hence the reason why some analysts said that we are in the midst of a “big rotation” from Big Tech to other sectors. - “Going into earnings season, we think earnings will be in the aggregate pretty good. So we’re actually looking for overall S&P 500 EPS growth to pick up from 11% to 13%,” said Binky Chadha, chief U.S. equity and global strategist at Deutsche Bank. - “But one level below is basically what we’re looking for, is a pretty big rotation in earnings growth.” Federal Reserve Chair Jerome Powell said yesterday that the central bank doesn’t need to wait until inflation comes down to the 2% level before starting to cut interest rates. The reason is simple — its policy works with “long and variable lags.” An interest rate cut won’t truly effect the economy until many months later, so waiting until inflation comes down to 2% will likely to be too late. - “The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,” Powell said. So, Fed officials look for “greater confidence” that inflation will return to its target level. Powell was pleased with recent inflation readings, and he doesn’t anticipate a hard landing. Jerome Powell (Photo: The Economic Club) A High-Risk, High-Reward Play on the Real Estate Sector Today’s Stock Pick: Better Home & Finance (BETR) This company is a high-risk, high-reward bet. Listen, Better Mortgage was in the news for wrong reasons. The most infamous story was when its founder and CEO Vishal Garg received a fierce backlash for firing 900 people on Zoom. What’s more, its stock was part of the SPAC frenzy that had questionable records of producing high-quality companies. However, Better Mortgage has a bonafide product that is disrupting the way people receive mortgages. It is like Lemonade of insurance. It makes it insanely easy to acquire mortgages — and receive better rates. Its product offerings include mortgages, buy & sell homes, title, homeowners insurance, home improvement line of credit, and HELOC. (Source: Better) Now, listen: The company operates in a massive industry. Believe it or not, annual spending within the housing market accounted for about $3 trillion per year (15-18% of US GDP) since 2001! All in all, Better operates in a cumulative market size of $17+ trillion. (Source: Better) While the industry is massive, it is notoriously difficult for consumers to go through the mortgage process. Buyers can pay fees for up to 10 intermediaries, accounting for ~10% of the home price! The underwriting process is slow and complicated. Better’s platform is changing all of that. (Source: Better) For example, it offers a one-day mortgage where the average commitment letter turnaround is just 8 hours. That’s nearly unheard of in the mortgage industry. (Source: Better) How is it possible? The company is relentless in lowering costs through automation. As a result, customers get irresistibly good mortgage rate deals. Better’s latest investor deck was Q2’23 (as of July 15, 2024). It showed that Better offered an average rate on a fixed 30-year Fannie conforming mortgage of 4.37% while other competitors offered 4.63%. (Source: Better) At the same time, it had a much lower post-closing defect rate than the competitors. (Source: Better) Bottom line: You and I know that the real estate industry is going through tough times. Higher mortgage rates basically froze the market. Naturally, it led Better’s stock price to plummet. But this could be a monster play once the real estate sector bounces back. If you are willing to buy this stock and hold through the ups and downs, the reward can pay off handsomely.   [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](     © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](