Things You Need to Know
- It’s another TECH headline! Stocks surge.
- Nasdaq, S&P and NVDA all make new highs.
- Understand sector weightings in the market and in your portfolio.
- Oil churns, bonds down while GOLD continues to shine.
- Watch the eco data today.
- Try the Chicken Skewers.
Yesterday morning I pointed out a handful of “tech” headlines from last week that sent anything with a chip or an AI label higher. I said, “it’s almost a daily thing.” Well — scratch the almost — it is a daily thing. Case in point: yesterday’s fresh headline —
“NVDA TO INVEST $100 BILLION IN OPEN AI DATA CENTER PUSH”
That was all the algos needed. They piled in and sent the Nasdaq to yet another new high, the Mag 7 to another new high, and NVDA itself up 3.6% to another new high! From there, all the tech derivatives caught fire: Quantum Tech (QTUM) +1.5%, Semis +1.7%, Cyber +0.2%, Expanded Tech +1%, Robotics/AI (BOTZ) +2.8%. And because the headline was about data centers, BOOM! The Global X Data Center ETF (DCTR) surged +2.5% — with names like EQIX +0.7%, DLR +1.6%, and APLD ripping +19%.
And when the final bell rang – here is what it looked like – the Dow added 66 pts, the S&P up 30, the Nasdaq up 160 pts, the Russell up 14, the Transports flat, the Equal Weight S&P gained 4 pts while the Mag 7 gained 250 pts.
Now again – look at what happened between the S&P and the Equal Weight S&P: one finished up 0.5% while the other one barely rose. That divergence tells you something. Tech – thanks to its outsized weighting in the mkt cap-weighted index – is pulling the S&P up, while the broader market is digesting.
Just to be clear so that you understand – here are the sector weightings for the 11 S&P major sectors.
Info Tech 34.7%, Financials 13.5%, Consumer Discretionary 10.7%, Communications 10%, Healthcare ~9.1%, Industrials ~8%, Consumer Staples ~ 4.7%, Energy ~3%, Utilities ~ 2.3%, Real Estate ~ 2% and Basic Materials ~ 1.7%.
When you hear that Information Technology is 34.7% of the S&P 500, what that means is this: more than a third of the entire index’s value is tied up in tech companies. The S&P is a market-cap–weighted index — so the bigger the company, the bigger its influence. And because the giants like Apple, Microsoft, and Nvidia have ballooned in value, tech now carries an outsized weight.
So, if the S&P 500 is up on any given day, odds are it’s because tech is driving it. Flip side? If tech rolls over, the whole index feels the pain. That’s why you’ll often see divergences between the cap-weighted S&P (where tech rules) and the Equal Weight S&P (where every company has the same influence). One can be surging while the other is flat or even lower — a reminder that this market isn’t as broad as the headline index might make it seem. You see that as well in ytd returns…the S&P is up 13.8% while the Equal Weight S&P is up only 7.6%.
Of the 11 S&P sectors, only Tech and Communications are stretched on the RSI scale. The XLK is now at 75.82, up from 72.5 yesterday morning. The XLC was sitting at 78.6, but after coming under some pressure yesterday, it eased back to 71.89 — still overbought, just a little less so. Remember – the other 9 are nowhere near being overbought.
Now here’s the kicker: those two sectors alone make up 44.7% of the entire S&P 500. Nearly half the index is sitting in just two buckets. So, if the algo’s get an “ass ache” or we get hit with a headline that is unexpected, I’d say — watch out, Tech and Communications will be the first to go! It’s a tangled web we weave – which again is why you need to be diversified and balanced.
And with all this excitement – it is important that investors be ‘responsible bullish’ says Tony Pasquariello – Partner/global head of hedge Fund Coverage. What have I been saying all along…..responsibly bullish means you’re positive on markets, but with guardrails. You acknowledge the upside, because the trend, earnings, and/or macro data points higher, but you’re responsible because you manage your positions wisely, you stay diversified, you set stops, and you recognize the risks (valuations, policy shifts, geopolitics, etc.).
Bonds gave back a little – but nothing to write home about. The TLT and TLH lost about 0.3%….10 yr yields are at 4.13% while the 30 yr is 4.74%. Shorter durations of 3- and 6-month bills are paying you 3.82% and n3.70% respectively.
Oil is trading at $62.50 – still below all 3 trendlines.
Gold continues to surge higher – this move just won’t quit…..…. This morning it went up another $40 trading at $3786/oz. China has made it clear that they want to become ‘a player’ in global gold markets. Yesterday Bloomberg reports that the People’s Bank of China is positioning itself as the ‘newest’ custodian of foreign reserves – Essentially, they want China ‘friendly’ countries to buy gold and then ship and store it in China. (really?) In addition, the move and excitement in gold has created a massive momentum play and you can come up with any number of reasons why the metal continues to surge. It is now nearly 8% above the nearest trendline – a level that has proven to be a headwind, but that doesn’t mean they won’t continue to push it.
And guess what? US futures are trapped. Dow futures are up 55, the S&P is flat, the Nasdaq is flat, and the Russell is flat. Eco data today is all about Services and Manufacturing PMI’s…. both expected to remain in the expansion zone.
European markets though are all higher – up about 0.6% across the board. Eurozone consumer confidence did edge a bit higher, up 0.6 pts but remains in negative territory at -14.9.
S&P closed at 6,693 up 30 points after testing as high as 6698. The chart tells you a lot…. You can draw trendlines that suggest a sell-off would find support at the 6560 level down 2%, or down at 6430 down 8% from here. And since we are in unchartered territory the upside is anyone’s guess…. year-end estimates run from 5800 at HSBC down 13% from here to 7100 at Oppenheimer up another 6% from here. Most of the others are between 6400/6800. Remember – forecasts remain fluid, and we can expect more tweaks after the 3rd qtr. earnings season.
Investing is exciting and frustrating at the same time. It’s about ‘the plan’ – make sure you have one. It’s about time in the markets, discipline, and risk management.
Let’s review your plan. Call me for a complimentary, no-obligation portfolio analysis: 561-931-0190.
Take good care,
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.
The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.
While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.
Simple but delicious Chicken Skewers.
They take all of 20 mins to make.
For this you need boneless chicken – cut into cubes – you can use breasts or thighs (white meat/dark meat), garlic, parsley, lemon zest, lemon juice, s&p, olive oil and seasoned breadcrumbs.
Preheat your grill – get it nice and hot.
In a bowl – add the chicken, olive oil and seasonings. Mix to coat.
Next – add in the breadcrumbs – enough to make sure you coat the chicken.
Now – make the skewers. (if you are using wooden skewers, make sure to soak in water first).
When ready – turn the heat down to med and place the skewers on the grill. The trick here – cook slowly – so you don’t burn.
Serve this with a salad and a vegetable of your choice. I would make roasted potatoes.
Buon Appetito!