The market continues to show evidence of rotation as skepticism about high-priced AI-related companies has grown while money has moved into non-Tech areas lately, including Financials, Industrials, Health Care, and parts of Materials, and Consumer Discretionary.

Broadcom's sharp decline today despite an apparent "beat" is less surprising after a 75% gain this year to push it to 43x its 2026 estimated EPS.

But the company stands out for its extraordinary run of 5+ years of consistent analyst estimate upgrades, so little wonder the multiple expanded.

Notably, the buy ideas have had moderate volatility -- not just chasing risk. The Avoid ideas have been riskier.

Fair warning, this has been a particularly good 3-year period and won't always be like this, but good to see real-time performance.

More here:
www.millstreetresearch.com/products-ser...

Assuming 1-month holding periods, the buy ideas have returned nearly 23% annualized. Avoid ideas have returned only about 2.5% annualized, vs the benchmark (Russell 1000 equal weighted) of 12.3%

NOTE: Mill Street does not manage money; these are hypothetical returns excluding transactions costs.

Bottom line is that investors are not getting out of stocks, they just rotate from one group to another from day to day.

The Fed's rate cut and mixed messaging yesterday are a net positive but mostly overwhelmed by other factors now.

Winners in the S&P 500 so far include Eli Lilly (LLY) on news of its next-gen obesity drug.

Visa and Mastercard are higher, JPMorgan Chase recovering, Microsoft and Netflix up despite the dip in big Tech.

Gold up sharply today while the US dollar is down.

Stocks and bonds up a bit on the news so far, but will wait for the press conference to get the full read.

The "dot plot" shows a median of 1 rate cut next year and 1 rate cut in 2027, so getting close to "neutral" now.

GDP growth forecast up a bit, inflation down a bit since last time.

Markets are concerned that if Trump puts more incompetent loyalists (like Miran) on the Fed, particularly as chair, then policy will be politically driven rather than based on proper economic analysis.

Worried markets could, at some point, cause more yield curve steepening.

Diesel (heating oil) in particular has held up better than gasoline, which is better than crude YTD. All that = better profits for refiners.

Using YTD changes in NYMEX 12-month futures strips:
Diesel (NRGSHO12) -4.3%
Gasoline (NRGSRB12) -9.7%
Crude (NRGSCL12) -17%

Within the energy space, refiners have been the clear leaders relative to the rest of the sector, as refining margins have widened even while crude oil has fallen.

The VanEck Oil Refiners ETF (CRAK) is up 43% YTD while the SPDR S&P Oil & Gas Exploration & Production ETF is up just 1.4%.

The bottom line is that Tech looks much more attractive in our work than Communication Services (in the S&P 500), a shift after both were moving together for much of this year.

The divergence in earnings trends and relative returns in the Tech space is part of a broader shift from the "buy everything risky" (esp. anything "AI") trend from mid-April to October to more selectivity by equity analysts and investors.

The blog flags some of the key names driving the Tech shift.

Fed meeting Wednesday still being discussed. Markets expect a rate cut, but likely a "hawkish cut", i.e. no rush to keep cutting with inflation still elevated.

Oil prices down sharply, giving back last week's bounce attempt. Refining margins (crack spreads) still elevated but off the November peak.

Notable that Ulta and Victoria's Secret both had strong earnings estimate revisions trends ahead of today's big jumps.

Both were ranked well in our MAER work ahead of today, especially VSCO.