The analysis indicates that US large cap semiconductor stocks have significantly outperformed software stocks, reaching a four standard deviation extreme over the last decade. While fundamentals for semis have been strong, historical patterns suggest that when leadership becomes this concentrated, a rotation is often the next move rather than continued acceleration. Therefore, tactical investors should consider reducing semi-exposure and looking more closely at software.
“Historically when leadership becomes this concentrated and relative performance reaches these kind of extremes. The next move is often rotation rather than continued acceleration. So for tactical investors that argues for reducing semi-exposure and looking more closely at software here.” — ▶ 00:08:00