A leading market strategist thinks the markets could pause ahead of several key market index events and start of the second half of the year, with stock indexes trading at all-time highs.
What Happened: Technology giant NVIDIA Corp NVDA recently passed Apple Inc AAPL and Microsoft Corp MSFT to briefly become the most valuable company in the world.
The 200% gain for Nvidia shares in the last year has helped major stock indexes, but could also lead to changes from investors in the second half of 2024.
"I think we're a little out over our skis," Freedom Capital Markets Chief Global Strategist Jay Woods said in a CNBC interview.
Woods cited the major rebalancing of the Technology Select Sector SPDR Fund XLK that will see Nvidia as a larger holding. Woods also mentioned it was changing at the top for market capitalization dominance among the three companies.
"That's changing how people are restricting their portfolios."
Woods said technical show stocks and indexes above major moving averages led to "a lot of euphoria in the market."
"After awhile, you're gonna pause."
Woods said the rebalancing of XLK and reconstitution of the Russell 2000 are key events coming around the second half of the year. Investors could be looking to cut back on their exposure to Nvidia after the sharp run-up in the first half of 2024, Woods said.
"A pause given the great run we've had is just a normal, routine thing."
Woods said, "now's the time if you have profits to book them."
Related Link: EXCLUSIVE: Nvidia Dow Jones Inclusion ‘A Matter Of When’ — Will It Replace Intel?
What's Next: While Woods sees a pause happening in the short term, he remains bullish on the market going forward.
"I still think this is early, AI leading the way," Woods said.
With a potential pullback in technology stocks and leaders like Nvidia, Woods is highlighting some other areas that could spell opportunity.
"I like the financials here."
Woods said July 12 is a key date to watch with JPMorgan Chase & Co JPM reporting quarterly financials and kicking off the sector.
Investors looking for exposure to the financials sector have many ETFs to choose from including the Financial Select Sector SPDR Fund XLF.
Woods also likes homebuilder stocks with mortgage rates going under 7%. The SPDR S&P Homebuilders ETF XHB is a leading homebuilder ETF option for investors.
While the S&P 500, tracked by the SPDR S&P 500 ETF SPY, has hit record highs, the Russell 2000 hasn't had the same returns, up less than 1% on the year.
Woods said the Russell 2000 could play catch up to the other indexes in the second half of 2024.
"When it runs, it runs quickly."
The iShares Russell 2000 ETF IWM tracks the Russell 2000 Index.
Woods said he's not predicting more than one cut the rest of 2024 and investors will likely try to position their portfolios based on the items above.
"People are going to look for value as we start the second half of the year."
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