In this Daily Editorial on The KE Report, I chat with Joel Elconin, Co-Founder of the Pre-Market Prep Show and Founder of the Stock Trader Network, to discuss the “violent rotation trade” underneath the surface of the US equity markets. His big takeaway lately has been that “leaders have turned into laggards, and the laggards have now turned into leaders.”
We picked it up where we left off last week where Micron Technology (MU) and SanDisk (SNDK) had blasted up after a nice earnings beat, but then dropped precipitously this week.
Micron got “Broadcom’ed” by the market… Joel points out that initially Broadcom (AVGO) had rallied on its earnings, before then getting taken out to the woodshed and beaten down over the last month.
There have been pockets of strength lately, due to a rotation trade out of MAG-7 leadership and out into select financial stocks, consumer staples, mixed retail, utilities, biotech (XBI), healthcare (XLV), but Joel advised caution in chasing these sectors much higher.
Another laggard trade, that has morphed into a leader trade has the been the small cap stocks as evidenced by the move in the Russell 2000 (IWM) for the last year, and picking up pace over the last few months.
We discussed that some stocks, like Intel Corp (INTC), with a current forward PE ratio over 150, are making upside moves that normally take years in just a matter of days and weeks; and thus, their valuations are now priced to perfection far out into the future.
His concern is the eventual assertion of gravity in the markets, where valuations actually start to matter again.
Oil prices have collapsed since the MOU was signed between the US and Iran, which is a bright spot for consumers and businesses alike, and it should help with the inflation readings moving forward. However, Joel points out that if the WTI prices drop even lower and the trends shift over into a deflationary cycle, then that could roil the markets.
When probed about the potential rotation from growth into value in that kind of a scenario, Joel highlighted that this is what we are already starting to see under the surface of these markets, and that happens later in the cycle when traders get into a more defensive posture.
Joel flagged that his biggest concern at present is that the markets are content to focus on the benefits of the rotation trade, but if money quits pulling out of one asset class and plowing right back into another and instead just goes to the sidelines, then things could also morph into a “sell everything” market in the 2nd half of the year. For this reason, his posture and general outlook is moving from neutral to bearish looking ahead to the balance of 2026.
Click here to visit Joel’s PreMarket Prep website – https://www.premarketprep.com/
Click here to visit the Stock Trader Network – https://www.stocktradernetwork.com/
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