Key Points
- The NASDAQ-100 has entered correction territory, dropping over 10% from its June 2 high amid AI CapEx concerns and mixed earnings from mega-cap tech names.
- Strategists note that market leadership is broadening beyond the Magnificent Seven, with healthcare and financials leading the S&P 500 over the past three months.
- The Schwab U.S. Large-Cap Value ETF offers diversified, low-cost exposure to large-cap value stocks and has outperformed the S&P 500 this year.
- Special Report: Buy this stock tomorrow
The tech-heavy NASDAQ-100 officially entered a correction territory, falling more than 10% from its June 2 year-to-date (YTD) high as some of the biggest semiconductor names and Magnificent Seven stocks spearheaded a sell-off fueled by artificial intelligence (AI) capital expenditure (CapEx) concerns and mixed earnings results.
But outside of those mega-cap companies, the remainder of the market is picking up the slack as the rotation out of tech has benefited a handful of overlooked sectors. Over the past three months, healthcare and financials have been the S&P 500’s top performers, gaining more than 16% and 11%, respectively. Over the past six months, nine of the index's 11 sectors are in positive territory.
For investors looking to take advantage of the subsequent opportunities in value stocks, one exchange-traded fund (ETF) perfectly fits the bill.
Tech’s Correction Highlights Broadening Resilience
According to Mark Hackett, chief market strategist at Nationwide Financial Investment Management Group, despite the Magnificent Seven’s underperformance this year, “the broader market has remained resilient, suggesting that leadership is broadening rather than breaking.”
Hackett notes that earnings growth for the other 493 companies in the S&P 500 could overtake the Magnificent Seven in the second half of 2026, which signals that broader earnings participation could become the defining feature of the next phase of the bull market.
“Leadership is dispersing across a wider opportunity set,” Hackett says. “That evolution appears increasingly driven by fundamentals rather than positioning alone.”
The operative word there is “fundamentals.” Chipmakers and hyperscalers drove the market higher during the earlier phase of the AI trade, with triple-digit gains seemingly becoming the norm as valuations expanded across parts of the technology sector. But a return to fundamentals—specifically, a greater focus on earnings, cash flow, and valuation—could benefit investors who know where to look for broader earnings growth.
In a June 17 research note, Gina Martin Adams, chief market strategist at HB Wealth, wrote that “as long as the economy continues to strengthen, the story for the markets may be rotation toward the ex-Mag7 stocks.”
Schwab’s All-in-One Large-Cap Value Solution
With approximately $15.7 billion in assets under management, the Schwab U.S. Large-Cap Value ETF (NYSEARCA: SCHV) provides investors with precisely that: a means of gaining broad exposure to value by tracking the Dow Jones U.S. Large-Cap Value Total Stock Market Index. While the fund does not omit AI stocks—Micron Technology (NASDAQ: MU) is one of its three largest holdings—it limits the impact of any single company.
Tech still makes up about 18% of the ETF’s portfolio, while financials account for approximately 21%. Industrials, healthcare, and consumer staples round out the fund's five largest sector allocations.
Similar to its guardrails against overexposure to tech, SCHV also provides limited exposure to this year’s top-performing sector, energy, a highly cyclical sector that has experienced heightened volatility this year amid sharp swings in oil prices and the conflict involving Iran. Energy stocks account for nearly 5% of the fund.
The ETF carries a net expense ratio of just 0.04%. Its top holdings provide a glimpse of its inherent diversification, which is a breath of fresh air given the concentration risk posed by market-weighted index funds these days.
Among the SCHV’s top-10 holdings are Micron, JPMorgan Chase (NYSE: JPM), Berkshire Hathaway (NYSE: BRK.B), Exxon Mobil (NYSE: XOM), and a trio of Dividend Kings in Johnson & Johnson (NYSE: JNJ), Walmart (NYSE: WMT), and AbbVie (NYSE: ABBV). That sample spans tech, financials, energy, healthcare, and consumer staples.
Following the Smart Money
When tech becomes overextended and sells off, Wall Street’s adjustments can provide a clue about where large investors are shifting exposure. Over the past 12 months, institutional inflows into SCHV have substantially exceeded outflows.
Meanwhile, the bears betting against the fund have all but disappeared. Short interest represents only a tiny percentage of SCHV’s outstanding shares, pointing to limited bearish positioning against the diversified fund.
But perhaps the most convincing argument that can be made in favor of this fund is its performance. SCHV has materially outperformed the S&P 500 so far this year while also providing shareholders with a yield of approximately 1.8%.
For investors looking beyond the Magnificent Seven, SCHV offers low-cost exposure to hundreds of large-cap value stocks without placing an outsized bet on any one company. Whether that outperformance continues will depend partly on the economy remaining strong enough to support the broader earnings recovery behind the S&P 493 comeback.
Read this article online ›
The best investment opportunities don't wait. Get our research and stock ideas delivered straight to your smartphone—so you never miss a market-moving opportunity. Our text alerts ensure you see timely stock ideas and professional research reports instantly, whether you're in a meeting, commuting, or away from your desk.
Get Text Alerts from American Market News (free)
No comments:
Post a Comment