The number of stocks outperforming the market should continue to expand, albeit in a choppy manner, according to Charles Schwab Chief Investment Strategist Liz Ann Sonders, who also expects "rapid-fire" sector rotations to endure.
"The new momentum trade is rotation. I think there's a lot of short-attention-span money that is in the market and it's sort of perpetually looking for the shiny new object, the dull new object," she said early Friday on CNBC's "Worldwide Exchange."
"It's a sell-first-do-actual-research-later kind of backdrop, and I think some of these rapid-fire rotations are likely to persist," Sonders added, noting recent market volatility fueled by AI narratives.
Disruption coming from AI will continue to hit micro segments of the market and bring a "baby out with the bathwater kind of trading backdrop," she suggested.
"Dip buyers are coming in with more specificity too," said Sonders, noting that the entire market isn't down. Investors, likely on the institutional side, are looking for opportunities that got oversold with the quick narrative shift, she added.
Meanwhile, market broadening "has legs," but in a choppy rather than linear way, according to the Schwab strategist. In the past year, only 20% of S&P 500 stocks outperformed the index, while the numbers have reached 60% in the past month or so, she said.
The market will continue to see rapid-fire sector rotations but longer term fundamentals support a broadening, said Sonders. Earnings growth for the Magnificent 7 technology mega-cap stocks is decelerating, she said, explaining that the direction for earnings growth matters as much as the level.
At the same time, she added, earnings have picked up for more cyclical economic segments.
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