As the market continues to rally, with the S&P 500 reaching new highs and the Mag 7 (a group of seven large-cap technology stocks) leading the charge, there has been a noticeable shift in investor enthusiasm. In recent weeks, speculative growth stocks have seen a significant sell-off, while the Mag 7 has continued to outperform. This trend was on full display Tuesday, when the Mag 7 rallied by 1.7%, while Speculative Growth stocks fell by 2.0%.

The inverse correlation between these two groups is worth noting. Historically, retail investors have been drawn to Speculative Growth stocks due to their high growth potential, but this time around, they seem to be shifting their attention towards the more established Mag 7. This could be a sign of changing investor sentiment, as the market continues to move higher.

So, what’s driving this shift in enthusiasm? One possible factor is the growing disconnect between performance and earnings revisions. As we highlighted last week, there has been a significant gap between the two, which could be attributed to enthusiasm. This could be due to retail investors becoming more optimistic about the market’s prospects, despite mixed signals from earnings revisions.

Another factor could be the rise of AI plays and second derivative growth stocks. These groups have seen significant inflows in recent months, as investors look for new ways to generate returns in a low-yield environment. However, these stocks have been hit hard in recent weeks, as concerns about valuations and fundamentals have grown.

The Mag 7, on the other hand, has traditionally been seen as a safer bet, with more established companies and better financials. This could be why retail investors are flocking to these stocks, despite their higher valuations.

It’s worth noting that this trend is not without risks. As the market continues to rally, valuations for Speculative Growth stocks may become even more stretched, while the Mag 7 could see a slowdown in growth. Additionally, there are concerns about the sustainability of the current economic expansion, which could impact both groups’ performance.

The shift in investor enthusiasm towards the Mag 7 is an interesting development to watch. While it could be a sign of changing sentiment, it’s important to keep in mind that this trend is not without risks. As always, it’s crucial to do your own research and consult with a financial advisor before making any investment decisions.