These are the best stocks in the worst sectors for investors betting on a rotation, says Josh Brown

The article highlights a “healthy tape” with ~68% of S&P 500 stocks trading above their 200-day moving average and argues for a rotation into lagging sectors. It spotlights Merck (MRK) up ~14% YTD to an all-time high despite a Q1 GAAP net loss of $4.2B; Q1 revenue rose 5% to $16.3B and management raised 2026 revenue guidance to $65.8B–$67.0B with EPS of $5.04–$5.16. It also points to Archer-Daniels-Midland (ADM) with Q1 revenue of $20.5B and raised full-year adjusted EPS guidance to $4.15–$4.70 (from $3.60–$4.25), supported by federal biofuel blending requirements, and State Street (STT) gaining from Treasury’s default investment into SPYM for the new Trump Accounts program; STT reported a record Q1 with revenue up 16% to $3.8B and EPS excluding notable items up 39%, while raising fee-growth guidance to 7–9% and planning a 10% dividend increase to $0.92.

Analysis

Breadth is the key signal: when participation broadens this much, money usually rotates into the names that were left for dead, not just the obvious leaders. That favors an incremental re-rating of large-cap defensives and asset gatherers, while crowding in momentum tech becomes more vulnerable to factor reversal if rates stabilize or earnings expectations flatten. The immediate implication is not “buy everything lagging,” but buy laggards with idiosyncratic catalysts and balance-sheet durability, because those are the stocks most likely to attract passive and quant follow-through over the next 4-8 weeks.

MRK looks like the cleaner structural winner. The market is willing to look through near-term accounting noise because it sees a credible bridge to the next earnings cycle; that usually supports multiple stability rather than explosive upside. The second-order risk is that investors may be over-discounting the patent-cliff problem too early, so any pipeline disappointment or slower-than-expected integration of acquisitions would likely hit hardest in the 1-3 month window, while the real thesis risk sits 18-24 months out.

STT is the highest-conviction catalyst trade because it combines operating leverage with a policy-driven asset-gathering narrative. The consensus may be understating how small the initial economics are relative to headline hype, but even a modest default-flow win can matter because this is a fixed-cost franchise with buybacks and fee sensitivity. ADM is more tactical: the trade is on policy-supported margin momentum, but this can unwind quickly if biofuel economics or crop spreads normalize; the risk/reward is best into the next earnings update, not as a long-duration structural call.

Key Decisions for Investors

• Long STT into the July 16 earnings print; best risk/reward is a momentum/operating-leverage continuation trade if fee income and NII guide higher again. Falsify on any sign the new program is too small to move flows or if management sounds cautious on buybacks.
• Pair trade: long STT / short XLF for the next 2-6 weeks to isolate company-specific flow and capital-return upside from generic bank/asset-manager beta. Exit if STT loses post-earnings support or if the broad financials group begins to outperform on a rates move.
• Buy ADM on pullbacks ahead of early-August earnings; this is a tactical trade on margin support from policy and oils, not a secular growth story. Tighten risk if the stock loses its recent support and if the company trims guidance back toward prior ranges.
• Accumulate MRK on weakness as a quality-defense rotation name over the next 1-3 months; the setup is more durable than explosive. Falsify if the stock loses its breakout area and management commentary suggests the pipeline bridge is slipping.
• Avoid chasing the broad healthcare ETF unless MRK-style relative strength starts appearing across the group; the cleanest expression is stock selection, not blanket sector exposure.