Tech stocks have driven a disproportionate share of the market's gains in recent years. Now, it's time for them to share the limelight, says Joe Quinlan, the chief market strategist at Bank of America. "There's plenty of places to put money to work better other than, say, Mag 7," he said, referencing the largest stocks in the S&P 500 by market capitalization.Specifically, cyclical stocks should start to look attractive next year, Quinlan said, calling the theme his highest-conviction investing idea right n ...

Core Insights - The current market rally has potential for further gains, with bears missing their opportunity for a significant pullback [2][3] - Seasonal trends from November to January typically yield strong returns, supported by the current technical environment [2] Technical Analysis - Key support levels for the S&P 500 remain intact, with major moving averages being respected [3] - The year-end target for the S&P 500 is set at approximately 7,000, a significant psychological level [3] Sector Performance - There is no indication of a classic "risk-off" sector leadership emerging, with major tech stocks like Google and Nvidia maintaining strength [6] - Energy is emerging as a new risk-off indicator, while staples and healthcare are stabilizing but not leading [5][6] Market Outlook - The market is expected to grind higher into year-end, but caution is advised for 2026 due to potential challenges from the presidential cycle and inflation risks [7][9] - Historical data suggests that second-year returns average only about 3.3% since 1928, with a notable lack of positive returns under Republican administrations [9] Strategic Approach - The company emphasizes a reactionary approach to market movements rather than predictive forecasting, focusing on price and positioning [8] - Investors are advised to buy dips that hold above major moving averages and prepare for elevated volatility [11]

Investment Rating - The report maintains a cautious outlook on US equities, expecting the markets to digest recent gains due to ongoing tariff rollouts and macroeconomic concerns [1][6][14]. Core Insights - The Q1 earnings season showed a pattern of falling revisions leading to positive surprises, but this translated into a decline in full-year EPS estimates [1][2][11]. - Growth sectors, particularly the Magnificent 7, demonstrated stronger earnings resilience compared to Cyclicals and Defensives, reinforcing the view that Growth is fundamentally defensive in the current environment [3][9][23]. - Small and Mid Cap companies are experiencing significant margin pressure, with notable downward revisions in gross margin expectations for 2025 compared to Large Cap firms [4][32]. Summary by Sections Earnings Performance - S&P 500 earnings surprises were strong, with EPS beats significantly outpacing sales beats, indicating efficiency gains rather than top-line growth [2][15]. - Despite a 6% upside in Q1 EPS estimates, there was a -1.4% decline in full-year consensus estimates, suggesting further earnings rightsizing is likely [8][18]. Consumer Sector Insights - The Consumer Discretionary and Staples sectors are showing signs of deterioration, with sales growth rates declining alongside rising unemployment [5][12][41]. - Recent sales growth numbers were weak, indicating potential consumer weakness ahead of full tariff impacts [5][12][39]. Tariff Impact and Market Outlook - The report anticipates that the current consensus growth for the S&P 500 will likely fall from +8% to +3% due to tariff implications [11][29]. - The S&P 500 has rallied approximately +14% since "Moratorium Day," but valuation concerns are resurfacing as the index approaches the year-end target of 5800 [14][29]. Small/Mid Cap Analysis - Small and Mid Cap firms are facing more significant cuts in sales growth expectations and gross margins compared to their Large Cap counterparts [32][33]. - Analysts express skepticism about the resilience of Large Cap gross margins unless there is a shift in tariff policies [32]. Consumer Insights - Top-line growth for consumer sectors has decelerated sharply, with Q1 results coming in at about half of the expected growth rate [36][39]. - Inventory levels among consumer companies were low, suggesting limited preparation for tariff impacts [43].