The stock market averages (^DJI, ^IXIC, ^GSPC) attempt to gain back some ground Thursday after disappointing second-quarter reports from the Magnificent Seven tech giants triggered a widespread sell-off earlier this week.
NFJ Investment Group managing director and senior portfolio manager Burns McKinney joins Wealth! to share his market outlook.
McKinney suggests this dip could mark “the start of a longer and more enduring rotation” in markets, driven by two key factors: first is the three consecutive inflation reports coming in below expectations, sparking hopes for a Federal Reserve rate cut; second, earnings expectations for AI tech names have become so lofty that they’re increasingly difficult to meet.
“If you have two students, an A+ student who comes home with an A- or you have a C student who comes home with a B. Which kid do you think is getting taken out for ice cream for beating expectations? I’d say it’s probably the latter and that’s kind of what we’re seeing in the market right now,” he tells Yahoo Finance.
Regarding value plays, McKinney advises investors to look for companies generating substantial free cash flow. He also recommends focusing on businesses that are raising and paying dividends as this signals “the management’s confidence in the business.”
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