Stocks in the technology sector have been leading the charge in the market, with high-flying companies like Nvidia Corp. and Amazon.com Inc. making waves. However, a recent bout of volatility has raised concerns about the sustainability of this rally.
Nvidia Corp. experienced a slip during its annual shareholder meeting, while Amazon.com Inc. reached a $2 trillion valuation, propelling it further into record territory. The market attempted to broaden beyond the megacap group, but measures still show weak market breadth, causing uncertainty about the rally’s staying power.
David Bahnsen at The Bahnsen Group commented, “The stock market is way too reliant on big tech — period and end of story.” The S&P 500 hovered near 5,470, with Micron Technology Inc. facing a test as it reports earnings after the closing bell.
FedEx Corp. surged on a bullish forecast and buyback plans, while the Federal Reserve is set to release the results of its annual bank stress tests. Treasury 10-year yields topped 4.3%, and the dollar hit its highest level since November.
Craig Johnson at Piper Sandler warned, “The market’s ‘Engine Warning Light’ is on as we head into the hot summer months.” He noted that tech-heavy indices are experiencing F.O.M.O, while the rest of the market feels R.O.M.O (regret of missing out) due to weak market breadth.
Looking ahead to the second half of 2024, Bloomberg Intelligence’s sector rotation model suggests that energy, health care, and financials could emerge as new leaders. Despite the dominance of tech stocks, there is optimism for a broader market rally.
Mark Haefele at UBS Global Wealth Management emphasized the importance of rightsizing tech exposure to navigate volatility while maintaining strategic exposure to growth-driving technologies. Falling correlations among stocks have also been observed, with a handful of companies driving returns on headline indices.
As the market awaits the results of the annual bank stress tests, optimism from the largest US banks is evident through increased stock buybacks. The upcoming second-quarter earnings season will shed light on the performance of the “Magnificent Seven” megacap companies and the broader market.
Overall, the market remains dynamic and investors are advised to stay vigilant amidst the evolving landscape of the stock market.
