Everyone wants to hit home runs. Finding the stock that explodes, doubling or tripling in value in your client’s portfolio certainly feels great. After all, its much easier to talk about your winners in mid-year client reviews than your losers, and having a stock that has quadrupled its benchmark is a winner by all versions of the word. Unfortunately, finding those tenbaggers is much easier said than done, and no one (even trend followers) would suggest building a business off them alone. With that in mind, it is perhaps more important to revisit a simple psychological bias- the idea that clients dislike losing more than they like winning. So called “loss aversion” states that the pain of loss is felt more than an equivalent gain- an important point to remember when it comes to how you handle your client’s portfolios. Sure, finding a stock that triples in a year would impress your clients… if you didn’t lose them all with a ton of little losers in the process. All this to say, finding ways to mitigate downside within weak sectors is paramount, particularly when it comes to the “business risk” of losing a client before you can show off your stock picking skills.

To demonstrate this idea, we created a completely hypothetical portfolio which equal weights the 11 sectors (10 pre-2019) since 2011. This baseline portfolio assumes that a prospective client showed no preference towards areas of strength/weakness across the back test. To demonstrate the importance of missing these losing sectors, we created a hypothetical portfolio which simply avoids the weakest sector and distributes the weight across the rest of the sectors for each respective calendar year. Point to point returns jump from 271% (baseline) to 479% (hypothetical) suggesting that is does in fact pay to avoid sectors that underperform. While this on its own is quite obvious, the point of this study is to demonstrate the substantial value gained by simply avoiding underperformers. Said otherwise, shedding underperformers isn’t quite as exciting as unveiling your “home run” pick to your clients, but certainly plays its own part in making sure you can manage their portfolio for the full nine innings.

Fortunately, the NDW platform has a wide variety of different tools available to you to ensure you are able to identify which areas of the market are worth avoiding. The DALI rankings are typically a good place to start, zooming in underneath the hood to gauge strength/weakness across different asset groups. Highlighting the new research hub below, you can click on any of the sectors to get up to date research content from the analysts. The featured buy lists are also a quick and easy way to source relevant ideas across different sectors. For those of looking to trailblaze your own screens, the security screener allows for complete customization, allowing you to focus on more in depth details (consecutive buy signals, trend distance, etc.) To build out an actionable list of ideas using the screener, we focused on those strong stocks in weak sectors (healthcare and energy), helping cut out those poor sectors we know can drag your portfolio lower. The exact criteria is detailed below, yielding a list of 11 names.

To wrap up today’s piece, we will offer a quick comment on one of the stocks found in the screen detailed above. Up over 30% so far in 2025, CAH has put together a string of three consecutive buy signals on its default chart, breaking to new all-time highs in May. Ranking second in its respective sector matrix, the stock remains a strong RS option for focused exposure within a weak healthcare group. Those a bit cautious around all-time highs could look to pullbacks towards the low $140’s. Regardless, finding opportunities to pick up exposure to high relative strength options within poor sectors is paramount when it comes to adding value across client portfolios.

Key points: A pivot back to the fundamentals as trade conflict comes off the boil

• In three months, the Nasdaq-100 Index® (NDX®) went from a bear to a bull market as ongoing trade policy developments have fueled risk assets globally.
• Concern was that U.S. economic hard data would catch-down to weak sentiment data. While worst-case scenarios will likely be avoided, there will still be an impact to activity.
• Q1 2025 earnings were solid. But markets are focused more on corporate outlooks and guidance.

Summary

Trade policy developments continue to unfold, driving risk assets higher over the past two months. Yet uncertainties and cross-currents persist for the U.S. and global economies as the average effective tariff rate on U.S. imports stands to be almost five times higher compared to 2024. Inflation expectations remain elevated and greater clarity is still needed for corporates. Equity markets remain on tenterhooks, and while incrementally more positive in the interim, investors have low conviction. However, as the markets and the real economy do not move in tandem, markets have priced in the lower likelihood of a recession and the expected ensuing decline in EPS growth rates. Appreciating the scope for market volatility ahead of the July 9th deadline of the 90-day pause on reciprocal tariffs, markets will ultimately be driven by fundamentals. The focus will be on high-quality companies that can deliver and grow in what may be a new norm, global secular themes which will continue to drive innovation forward, and opportunistic investments amidst the shifting global construct.

Chart in focus: International equities outperformance vs. U.S. equities over last six months hit highest level of last 10 years

As a proxy of international equities’ performance relative to the U.S., Nasdaq Global ex-United States™ Index has outperformed the Nasdaq U.S. Benchmark™ Index by over 13% the last six months—equivalent to +3.2 standard deviations vs. the 10-year average. After international outperform U.S. equities by more than +2 standard deviations over the prior six months, they have never outperformed on a relative basis over the ensuing six months during the past 10 years and underperformed by an average of -7.7% going forward. This suggests that the “Sell America” narrative in equities became very stretched tactically on a relative basis.

Trade tariff news flow has driven risk sentiment

The last three months have likely felt like an entire cycle for investors. U.S. equities went from near or in bear market territory from their February 19th peak to their April 8th low (S&P 500 Index SPX: -18.9%; Nasdaq-100 Index NDX: -22.9%), to being marginally positive YTD. The latest move higher by equities comes after the better-than-expected U.S.-China 90-day respite in early May to begin trade negotiations and extending the deadline for a trade agreement with the EU to July 9th.  

Comprised of the world’s leading growth companies, the global de-escalation in the trade tariff conflict has pushed the NDX back into a bull market (higher by almost 26%) amidst the strong rebound in mega cap tech and artificial intelligence (AI) ecosystem constituents.

Policy and macro volatility are likely to persist in the near-term. However, AI will remain a secular trend and a key fundamental theme for investors globally as AI capex spending is on track to exceed $300 billion in 2025 vs $150 billion in 2022. As a proxy for the U.S. and China AI race and the tech global supply chain—which faced headwinds from trade policies and geopolitics—the PHLX Semiconductor Sector™ Index (SOX) fell by nearly 35% from immediately before the DeepSeek announcement on January 20th to the April 8th equity lows. But SOX has risen by nearly 39% since then.

With equity market volatility falling, the growth factor and cyclical sectors have outperformed since the April 8th lows. Notably, S&P 500 technology, consumer discretionary, and industrial sectors are all higher by at least 22% . These areas had sold off sharply as they represent important segments of the U.S. economy’s exposure to the trade conflict and derive 55%, 34%, and 33%, respectively, of their revenues internationally (per FactSet).

Weaker consumer and business survey data versus resilient lagging hard data

The University of Michigan’s Consumer Expectations gauge hit its lowest level since the early 1980s and the NFIB’s Small Business Uncertainty Index hit its second highest level on record going back to 1975.

It can take time for confidence to reset amongst consumers and companies which can dictate activity. Bloomberg’s consensus 2025 real GDP YoY has dropped from 2.30% at the end of February 2025 to 1.40% today as growth risks skew to the downside. Similarly, consensus 2025 real GDP forecasts have also fallen in Europe and Japan.

The impact on activity may not be as severe due to the de-escalation of the trade conflict. Yet the economy and companies will still need to contend with a higher level of tariffs on U.S. imports. Based on the tariffs currently in place, the Tax Foundation estimates that the U.S. average effective tariff rate would be 12.1%—a nearly five-fold increase from the average effective rate of 2.5% in 2024. This is expected to adversely affect growth and corporate margins, while also exerting upward pressure on inflation due to a supply shock. However, high frequency economic data such as the four-week moving average of initial jobless claims has remained resilient at nearly 231,000. The average level at the outset of the four recessions since 1980 (ex-Covid) was around 380,000.

The improved storyline around trade tariff negotiations, steady economic data thus far, and expectations for moderating but stickier inflation have the markets pricing in around two Fed rate cuts by the end of 2025 versus over four at the end of April. While off their recent high of 4.60%, Treasury 10-year yields have remained above 4.40% for most of the past month. Equities took the initial move higher in stride on the narrative that yields rose for “good” reasons: the less punitive impact on growth from the de-escalation in trade tensions.

However, there are also “bad” reasons behind Treasury yields moving higher. In addition to elevated inflation expectations, there are increased concerns over wider U.S. fiscal deficits leading to even higher debt levels—exhibited by Moody’s Ratings downgrade of the U.S. government’s credit rating on May 16th. U.S. federal deficit concerns have been fanned by the progress of the One Big Beautiful Bill Act (“OBBBA”)—the Congressional Budget Office estimates that the bill as currently written would add $2.3 trillion to the fiscal deficit over the next decade. This has pushed the Treasury 10-year term premium (as measured by the New York Fed) to its highest level since June 2014.

The equity-Treasury bond dynamic will be important for investors to monitor as returns have been positively correlated for half of 2025 (based on rolling 30-day total returns of the S&P 500 and the Treasury-10 year). This has led to increased questions around Treasuries maintaining their historical role as a ballast for traditional portfolios. All at a time when the U.S. dollar, another traditional safe haven, recently hit three-year lows.
 

While extreme trade headline risks have abated, corporates still need clarity

Q1 earnings were stronger than expected: S&P 500 earnings rose 13.6% YoY vs. estimates of 6.6% YoY and NDX earnings grew 21% YoY vs. estimates of 17.4% YoY. This speaks to the resiliency of the U.S. economy and the corporate sector. However, Q1 earnings are backwards-looking and investors are rightfully more focused on corporates’ forward guidance for a sense of how the impacts from the trade tariffs unfold.

Also reflecting corporate uncertainties, forward 12-month S&P 500 and NDX EPS growth estimates are now 7.3% and 10.6% from 13.6% and 1%, respectively, at the end of January. Given lower forward EPS estimates coupled with the recent equity rally, investors are also contending with elevated forward price-to-earnings ratios which are 38% to 40% higher versus 20-year medians for U.S. large cap equity benchmarks.

Despite the scope for an improving earnings outlook given the recent de-escalation in trade tariff risks, corporates and investors still need greater trade policy clarity. This leaves investors cautiously optimistic in the interim but with low conviction and lower risk levels given the ongoing uncertainties. Over the longer-term, though, equity returns will ultimately be driven by those best-in-class companies with the strongest fundamentals such as growth dynamics, competitive advantages, and product innovations.

Disclaimer:

Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

© 2025. Nasdaq, Inc. All Rights Reserved.

International equities advanced into the second position in our DALI asset class rankings following the market action on Friday, June 6. While international is technically tied with commodities at 238 relative strength (RS) buy signals each, foreign stocks get the second position as they are showing more near-term relative strength. We now see international trailing domestic equities by just three RS signals. That is the smallest spread we have seen between the two asset classes since December 2023. Today’s technical posture is quite different. International equities are the ones gaining the most strength, as shown through the asset class’s 28 signal improvement over the trailing month (5/6 – 6/6). However, domestic equities have also been improving, gaining six signals over the same timeframe. Those two asset classes are the only ones that have shown improving relative strength over the past month. Both are doing well, but international equities have just gained more momentum.

You may be asking, how should this information influence asset allocation decisions? All of our asset allocation models that use the DALI rankings function with bands for minimum and maximum allocations. As long as domestic equities sit at the top of the rankings, they take all of the tiltable allocation within our DALI Tactical Tilt strategies. This means that international equities will not gain any allocation on top of their defined minimum until they (potentially) surpass US stocks. That could happen tomorrow, next week, next month, or not at all. The important thing to remember when using the DALI rankings is that they are not predictive, they are reactive. They react to trends in the marketplace and seek to ride those trends as long as possible. That means we would not recommend preemptively adjusting allocation until the rankings have indicated it is time to do so.

We have gotten pretty used to seeing domestic equities sit at the top of the DALI rankings over the past 15 years, but that has not always been the case. The 2010s decade saw domestic equities sit at the top of the rankings in 89% of trading days. On the other hand, domestic equities only sat atop the rankings for 4% of the days in the prior decade of the 2000s. That period saw international equities ranked first for 51% of the days, and commodities sat in first for 33% of the days.

As we near the halfway point for the current decade (at the end of this year), domestic equities have been ranked in the first position for about 61% of trading days. International equities have seen glimpses of strength but have still only been in the first position for 10% of the trading days. That is no where near the 51% of days seen in the 2000s, but more than triple the hit rate from the 2010s. Strength does seem to be shifting in favor of international equities, but that does not mean that domestic equities are going to fall out of favor in the rankings. Instead, it could just point toward more breadth across global equities as a whole for the foreseeable future.

Daily Option Ideas for June 9, 2025