Look out, bears. The S&P just picked itself up and hit a nine-month high this morning. And who else led the charge but Big Tech; the market’s top handful of stocks pushed the broader market index 0.25% higher yet again through noon. The tech-heavy Nasdaq Composite outperformed, rising 0.5%, while the Dow fell 0.25%.
Apple (NASDAQ: AAPL), the juggernaut of all tech toys, saw its shares shoot up over 2%, hitting an all-time high. The tech world was all agog with the upcoming announcement of Apple’s new VR headset at the Worldwide Developers Conference. The market’s other tech darlings weren’t far behind, either. Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) both padded their pockets by more than 1% each. Netflix (NASDAQ: NFLX) also decided to get in on the fun with a 2.6% jump.
The market rally from last week, which was fed by a robust May jobs report, has Wall Street saying that the feared 2023 recession might just be pushed until next year. JPMorgan implied as much this morning in a note to clients. That, plus the recent passage of the debt ceiling bill, lifted spirits.
But bulls shouldn’t get ahead of themselves, here. Worries still simmer below the surface about this year’s narrow market rally, which as we mentioned last week remains focused around a mere handful of tech stocks. Breadth has gone from bad to very bad as the indexes soared.
This prompted a bearish note from Barclays analysts shortly before trading opened today.
“The YTD rally has been narrow and Tech-focused, and we believe its foundations are tenuous. The easy money has been made, and the pain trade/path of least resistance may no longer be to the upside,” wrote Venu Krishna, chief U.S. equity strategist at Barclays. Tech valuations are sitting near historical highs while earnings revisions are still bleeding
JPM’s “no recession” prediction was called into question today, too, after investors learned that the services side of the U.S. economy limped its way to a marginal expansion in May. The ISM services index posted a reading of 50.3, edging just past the 50 mark, which divides expansion and contraction.
Economists were predicting a heartier 52.3 reading by comparison, riding on the coattails of April’s 51.9. But it seems the economy didn’t get the memo.
Order backlogs took a nosedive, dropping nearly 9 points to land on a paltry 40.9 alongside new orders, which fell 3.2 points to 52.9. The employment sector was the real surprise, however, flipping over to contraction with a sobering reading of 49.2.
While all this is going on, prices decided to play the rebel, showing stubborn inflationary pressures. They dropped 3.4 points, yes, but parked themselves at a sturdy 56.2. The market was seemingly able to overlook the ISM data with Apple’s big conference approaching at 1pm EST. Are those kinds of gains sustainable, though?
Probably not. And with the market’s total put/call ratio still buried, it may only be a matter of time until stocks snap lower as sentiment normalizes.