‘Funds Will Get Wiped Out’: Massive Rotation Happening Now | David Cervantes

The recent tech sector selloff stems from a convergence of rising Treasury rates, strong economic growth, and shifting capital expenditure plans among hyperscalers. David Cervantes of Pinebrook Capital explains that the AI trade, previously fueled by massive investment, faces a re-rating as companies prioritize return on invested capital over aggressive expansion. While tech stocks have struggled, capital has rotated into defensive sectors like healthcare and financials. Macroeconomic stability remains contingent on energy supply shocks and labor market dynamics, with a tightening labor market potentially forcing the Federal Reserve to maintain a hawkish stance. Investors should monitor corporate credit spreads, particularly at the lower end of the spectrum, as a leading indicator of funding stress. Despite current volatility, the broader economic cycle remains in a "risk-on" phase, though earnings growth expectations for the third quarter have moderated significantly compared to earlier in the year.