(Bloomberg) — Tech giants took a hit in late U.S. trading after Micron Technology Inc.’s outlook failed to meet lofty industry expectations that fueled the stock bull market .
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A $285 billion exchange-traded fund that tracks the Nasdaq 100 (QQQ) fell after the computer memory chip maker forecast sales below some investors’ estimates. Micron collapsed late in the day, dragging down some chipmakers, including giant Nvidia Corp. Also after Wall Street closed, the Federal Reserve said America’s largest banks had passed the annual stress test, paving the way for higher payouts to shareholders.
The market’s recent attempt to expand the mega-cap group was short-lived, with a host of metrics further showing how weak the market’s breadth remains, reinforcing uncertainty over the sustainability of the rally. The bifurcation between performance and magnitude of the S&P 500 has reached one of the worst levels in three decades, according to Bloomberg Intelligence.
“The stock market is way too reliant on big tech — period, end of story,” said David Bahnsen of the Bahnsen Group. “Whether last week’s volatility in the tech sector is the beginning of something deeper or whether that reckoning is still to come remains to be seen, but excessive investor sentiment, euphoria and excessive momentum always end up the same thing.”
The S&P 500 edged up to about 5,480 points. FedEx Corp. surged on bullish forecasts and buyback plans. Amazon.com Inc. hit a $2 trillion valuation, a surge that pushed the e-commerce giant deeper into record territory.
Yields on the 10-year Treasury rose above 4.3%. A $70 billion sale of five-year notes showed signs of good 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.”
The S&P 500 index is on track for a very positive performance in the first six months of the year, fueled by a rally in the market’s biggest names. Dividing the 500 index’s stocks by market capitalization quintile shows a consistent pattern of step-like performance: the bigger the stock, the better it does, according to Cresset’s Jack Ablin.
“Much of the divergence is attributable to a ‘higher and longer’ interest rate environment,” Ablin noted. “Investors believe that large-cap technology companies – thanks to their ability to generate cash – are less dependent on borrowing and that companies that need to borrow have much easier access to capital than their smaller sisters . So where are the markets heading in the second half of 2024? »
Ablin expects U.S. stock markets to broaden later this year as the possibility of a rate cut becomes more apparent.
“This means that high-quality companies, particularly those with persistently growing dividends, will likely continue to outperform their lower-quality peers in an increasingly restrictive borrowing environment,” he added.
Bloomberg Intelligence’s sector rotation model indicates it’s time for new leadership to emerge – and favors energy, healthcare and financials as the best-supported sectors to lead the index in the second half.
“Technology and the tech-adjacent communications sector have the strongest price momentum – but declining earnings dominance and high relative multiples have pushed both groups down our ranks, wrote BI strategists led by Gina Martin Adams.
For the second-quarter earnings season, the “Magnificent Seven” megacaps are still expected to account for the bulk of growth in the overall 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.”
The S&P 500 is on track to enter the second half with a gain of about 15% since the start of 2024. And July ranked as the strongest month of the year for the stock metric, both since its inception and more recently over the last couple of years. decades, according to data compiled by Bespoke Investment Group.
“What’s more interesting is that if you focus on the last 20 years, July’s outperformance is the eye of the storm,” Bespoke noted. “July is sandwiched between June, August and September, all of which rank as the three worst months of the year, with average declines of 0.17%, 0.10% and 0.7% respectively. »
Company strengths:
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Profits at Jefferies Financial Group Inc. rose as investment banking revenue rose and debt underwriting more than doubled, a sign that the outlook for America’s largest banks has improved.
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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.
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Whirlpool Corp. surged after Reuters reported that Robert Bosch GmbH was considering a bid for the home appliance maker.
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A top executive at McDonald’s Corp. reiterated that the previous U.S. test of plant-based meat didn’t work and added that the burger chain’s customers don’t go to its restaurants for salads. Beyond Meat Inc. partnered with McDonald’s to produce the McPlant burger.
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Shares of Moderna Inc. fell after new data showed the effectiveness of its RSV vaccine fell sharply in the second year and was lower than competing vaccines.
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General Mills Inc., the maker of Cheerios, gave a disappointing sales outlook as shoppers continue to retreat amid rising prices at supermarkets.
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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.
Key events this week:
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Chinese industrial profits, Thursday
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Eurozone economic confidence, consumer confidence, Thursday
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US Durable Goods, Initial Jobless Claims, GDP, Thursday
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Nike reports results on Thursday
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Japan Tokyo CPI, unemployment, industrial production, Friday
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U.S. PCE Inflation, Spending and Income, University of Michigan Consumer Sentiment, Friday
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Fed’s Thomas Barkin speaks Friday
Some of the main market movements:
Actions
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The S&P 500 rose 0.2% as of 4 p.m. New York time
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The Nasdaq 100 rose 0.3%
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The Dow Jones Industrial Average was little changed
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The MSCI World index has changed little
Currencies
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The Bloomberg Dollar Spot Index rose 0.4%
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The euro fell 0.3% to $1.0680
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The British pound fell 0.5% to $1.2623.
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The Japanese yen fell 0.7% to 160.80 per dollar
Cryptocurrencies
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Bitcoin fell 1.5% to $60,968.31
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Ether little changed at $3,408.48
Obligations
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The yield on 10-year Treasury notes rose eight basis points to 4.33%
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The German 10-year yield rose four basis points to 2.45%
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The UK 10-year yield rose five basis points to 4.13%.
Raw materials
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West Texas Intermediate crude fell 0.2% to $80.64 a barrel
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Spot gold fell 0.9% to $2,298.61 an ounce
This story was produced with the help of Bloomberg Automation.
–With the help of Alexandra Semenova.
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