Tech stocks rallied after the Federal Reserve cut rates 50 basis points, with some of the Magnificent Seven names like Tesla (TSLA) and Nvidia (NVDA) leading the charge. Citi head of US equity strategy Scott Chronert joins Seana Smith and Madison Mills on Catalysts to discuss how to play the tech sector.

“It's a buy the news, sell the news reaction to the Fed,” Chronert says. “The leadership this quarter has really been those areas of the market that are perceived beneficiaries of lower rates. So real estate, utilities, even the homebuilder ETFs have been hitting recent highs. In the meantime, tech is still lagging where it was last time the index was through 5,600."

“Essentially what you have here… is that a bit of a profit taking on the news in those areas that have been perceived as rate sensitive. And, at the same time, a catch-up move in that mega-cap growth cohort that ultimately does benefit from lower interest rates, but has been a relative laggard thus far this quarter. All told, what you've got is an index moving higher.”

Taking a look at the Magnificent 7, Chronert outlines Citi’s view on the group: “We've been arguing for the better part of this year that they're becoming more idiosyncratic in their behavior.”

He explains that Nvidia, Apple (AAPL), and Microsoft (MSFT) — who control over 6% of the index — "those companies are going to be important to index price action and I think you're seeing that today. But, what we're focused on from this barbell angle is we want to be holders of those, but when you look at the rate of increase in this and forward-year earnings expectations, it's been a stair-step function for over a year now. It's beginning to decelerate.”

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This post was written by Naomi Buchanan.