(Bloomberg) — Stocks struggled in the latter part of a strong quarter in which a small group of high-flying technology stocks led the way.
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A surge in volatility hit Nvidia Corp., which fell at its annual shareholder meeting. The poster child of the artificial intelligence frenzy has been on a roller coaster ride, mostly heading toward the large-scale market. Fellow Amazon.com Inc. hit a $2 trillion valuation in a rally that propelled the e-commerce giant deeper into record territory.
A recent attempt by the market to broaden the mega-cap group was short-lived, with a slew of metrics still showing how weak the market’s breadth remains, adding to uncertainty about the rally’s sustainability. The bifurcation between performance and breadth in the S&P 500 has reached one of its worst levels in three decades, according to Bloomberg Intelligence.
“The stock market is far too dependent on big tech – full stop and end of story,” said David Bahnsen of the Bahnsen Group. “It remains to be seen whether last week’s volatility in the tech sector is the start of something deeper or whether this reckoning is still to come, but excessive investor sentiment, euphoria and excessive momentum are ending always the same thing.”
The S&P 500 was hovering near 5,460. Micron Technology Inc.’s more than $62 billion rally, powered by artificial intelligence, will be put to the test when it reports results after the closing bell. FedEx Corp. surged on bullish forecasts and buyback plans. The Federal Reserve will release the results of its annual banking stress tests on Wednesday.
Yields on the 10-year Treasury rose above 4.3%. A $70 billion sale of five-year notes showed signs of strong demand. The dollar reached its highest level since November. The fall of the yen to its lowest level since 1986 increases the risk of intervention.
“The market’s ‘check engine light’ is on as we head into the hot summer months,” said Craig Johnson at Piper Sandler. “Investors in technology-heavy indices experience FOMO, while investors in the rest of the market experience ROMO (regret of missing out), as overall market breadth remains low outside of a handful mega-cap stocks. We believe the maintenance of the S&P 500 is overdue.
Mark Haefele of UBS Global Wealth Management says that while Nvidia’s volatility has boosted sentiment, the structural investment case for artificial intelligence remains intact due to positive adoption trends and monetization of AI. He also has a positive outlook on broader stocks amid strong fundamentals.
“We maintain our positive view on the AI story, but believe the right technology exposure is key to managing volatility while maintaining strategic exposure to the technology that we believe is expected to drive growth in the years to come. to come,” he added.
For the second quarter earnings season, the “Magnificent Seven” megacaps are still expected to account for most of the growth in the entire S&P 500, according to Ryan Grabinski of Strategas.
“What remains encouraging for us is that estimates for the remaining 493 improve from the third quarter onwards, as growth rates at the top of the market and the rest of the market normalize,” he said. -he noted. “If this widening were to materialize, it would be an encouraging sign for the sustainability of the bull market.”
In the meantime, Bahnsen says the biggest risk to the stock market today is excessive valuations.
“The stock market is currently very expensive. Valuation is the biggest risk, if everything remains good, and anything that could happen is unpredictable by definition,” he added. “The need to correct stock overvaluations is not only visible, it is inevitable.”
According to Greg Swenson of the Leuthold Group, falling correlations are another side effect of having a handful of stocks taking up a large share of leading indexes. With the “Magnificent Seven” being the daily drivers of returns, the other 593 stocks became less correlated to the S&P 500’s daily movements.
“While falling correlations are generally a good thing for active managers, we think this time is different,” Swenson said. “Lower correlations are only a good thing if the manager is properly positioned in the areas that are outperforming – and we doubt that the average all-cap, and even large-cap, manager has anywhere near the exposure of the benchmark index for the biggest names.”
At the same time, the largest US banks did not wait for this week’s stress tests to express optimism about their capital levels.
The six biggest lenders bought back more than $14 billion worth of shares in the first quarter, a 73% jump from the meager pace in the second half of last year.
The regulators’ annual review – the results of which are expected to be released Wednesday afternoon – tends to set the tone for how aggressive banks are in returning capital to shareholders through dividends and buybacks.
Company strengths:
Interactive Brokers Group Inc. suffered a $48 million loss after a trading disruption on the New York Stock Exchange this month and is exploring its options to recover the money, including possible legal action.
Whirlpool Corp. surged after Reuters reported that Robert Bosch GmbH was considering a bid for the home appliance maker.
A test by McDonald’s Corp. of its plant-based burger in San Francisco and Dallas “didn’t pan out in either market,” Joe Erlinger, the chain’s U.S. chief executive, said Wednesday. Beyond Meat Inc. has partnered with McDonald’s to produce the McPlant burger.
General Mills Inc., the maker of Cheerios and Old El Paso taco shell stocks, gave a disappointing sales outlook as shoppers continue to retreat amid rising prices at supermarkets.
Southwest Airlines Co. cut its second-quarter unit revenue estimate, a sign of the carrier’s continued struggles as it fends off pressure from activists for a management overhaul.
Volkswagen AG is taking a new turn in its long struggle to catch up with Tesla Inc., investing $5 billion in a tie-up with the U.S. company’s closest potential rival, Rivian Automotive Inc.
Airbus SE has warned airlines that some of their planned aircraft deliveries over the next two years may be delayed, indicating that supply chain problems at the world’s largest aircraft maker could extend well into the future. beyond the current year.
Novo Nordisk A/S said it would take a writedown of around 5.7 billion Danish crowns ($820 million) after halting a late-stage study of an experimental heart drug it had acquired ‘last year.
Key events this week:
Chinese industrial profits, Thursday
Eurozone economic confidence, consumer confidence, Thursday
US Durable Goods, Initial Jobless Claims, GDP, Thursday
Nike reports results on Thursday
Japan Tokyo CPI, unemployment, industrial production, Friday
Inflation, U.S. Business Spending and Income, University of Michigan Consumer Sentiment, Friday
Fed’s Thomas Barkin speaks Friday
Some of the main market movements:
Actions
The S&P 500 was little changed as of 1:21 p.m. New York time
The Nasdaq 100 has changed little
The Dow Jones Industrial Average was little changed
The MSCI World index fell 0.2%
Currencies
The Bloomberg Dollar Spot Index rose 0.4%
The euro fell 0.3% to $1.0686
The British pound fell 0.4% to $1.2629
The Japanese yen fell 0.6% to 160.63 per dollar
Cryptocurrencies
Bitcoin fell 1.7% to $60,855.29
Ether fell 2.1% to $3,338.06
Obligations
The 10-year Treasury yield rose five basis points to 4.30%
The German 10-year yield rose four basis points to 2.45%
The UK 10-year yield rose five basis points to 4.13%
Raw materials
West Texas Intermediate crude rose 0.7% to $81.36 a barrel
Spot gold fell 0.7% to $2,302.48 an ounce
This story was produced with the help of Bloomberg Automation.
–With the help of Alexandra Semenova.
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News Source : finance.yahoo.com
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