Mike Santoli Stock Markets for the Week Ahead Nvidia Apple | Wilnesh News
Whatever the final diagnosis of the market’s current situation, symptoms include “mild malaise with intermittent fever and chills.” To be sure, its overall condition is healthy in the most widely observable terms. The S&P 500 hit a new high for the 25th consecutive time this year. The index has now gone 328 consecutive trading days without a single-day decline of 2%, the third-longest losing streak this century. On the surface, there is a cool calm that suggests the system is in a comfortable equilibrium and the market has achieved some kind of homeostasis. The S&P 500 rose less than 0.2% on four of the last five days last week. The fifth day, Wednesday, drove a 1.3% gain for the week. The CBOE Volatility Index closed back near 12, a level that defines a near-term bottom not seen since the carefree moments before the COVID-19 crash. .VIX 5Y CBOE Volatility Index, 5 Years Of course, this mildly calm performance is not as stable as it appears above. This is where fever and chills roughly cancel each other out, and can sometimes become uncomfortable. Nvidia, GameStop Mania It’s hard to escape or ignore the overheated euphoria detailed last week over Nvidia, a $3 trillion company with record daily dollar trading volume and accounting for a third of the S&P 500’s appreciation One more than 2024. Maybe this is the record date for the 10-for-1 stock split that goes into effect Monday? This is more of a guess than an analytical assessment. The sweat of the GameStop crowd sent the faltering retailer’s stock price between 25 and 47 on Thursday and Friday, with shares rising on investor Keith Gill’s promise to break his silence and then on a lack of new deals. or new investors and fell sharply. For now, the resurgence of GameStop mania seems less extreme, with gains fleeting, short-selling interest less intense, and the company itself flooding the market with new issuances — 45 million were issued a few weeks ago shares, and plans to issue an additional 75 million shares. GME YTD mountain GameStop, YTD There’s no doubt that overall trading volume in stocks with margins below $1 has surged in recent weeks, and retail options activity continues to break records. But it has not become widespread or indiscriminate, and while overall investor flows into equities have increased, they still lag behind flows into money market instruments. Economic slowdown? Some of the more cyclical parts of the market are feeling the chill, with U.S. Treasury yields continuing to fall for at least much of last week (the 10-year Treasury yield fell from 4.6% in mid-May to 4.28% last Thursday) )fail. This reflects greater sensitivity to signs of economic slowdown than investors or the Fed expect or expect. I don’t want to overemphasize this “growth panic” impulse, but a series of downside surprises in manufacturing indexes and housing data and a slow downside reversal in crude oil and other commodities are good for bonds and deflation, but bad for stocks. Friday’s jobs report showed overall employment rose by a very strong 272,000 in May, while the household survey was weaker and the unemployment rate rose to 4% from 3.9%. It was strong enough to prompt the last group of bank economists who expected a rate cut in July to abandon that view, but not enough to quell concerns that the labor market was moving beyond rebalancing and into deterioration. The confusion is reflected in a still-fragmented market, with the overall benchmark index approaching highs and more stocks falling than advancing. The S&P 500 has gained nearly 2% since its closing peak at the end of the first quarter, perhaps at the moment of greatest confidence that the economy will have a seamless soft landing. However, the equal-weighted version is 3.4% below its March 28 peak. Bespoke Investment Group noted last week that the index had hit its latest high, with a negative 10-day tally of advancing and declining stocks. This kind of thing sounds a little ominous, and there’s no doubt that more inclusive gatherings tend to have more forward-looking signs of health than parochial ones. But the index has hit new 52-week highs 17 times previously and has similarly poor breadth, with returns slightly above average in the coming months. Is the market too top-heavy? Together, these three stocks currently account for 20% of the S&P 500’s market capitalization, making a mockery of the concept of diversification and dashing the hopes of most active investors in overcoming their predicament. Longtime finance researcher, professor and investor Michael Mauboussin, now affiliated with Morgan Stanley Investment Management, conducted a comprehensive study of stock market concentration over time and came up with some interesting conclusions. One is simply that there have been similar top-heavy markets in the past, which did not always lead to poor subsequent performance. Note the early 1960s in this chart (with data through the end of 2023). Other observations are that concentration tends to increase during bull markets and increases along with strong profit growth. Mauboussin even found some evidence that when markets are less top-heavy, markets may not be concentrated enough given the fundamental and stock price outperformance of stocks that continue to grow in size in subsequent years— Too diverse. Still, while there’s no single “right” way for markets to behave, a scenario in which other groups fill the void may be best suited to the current bull market scenario: ongoing deflation has allowed the Fed to keep the economy strong, and presumably the excitement about artificial intelligence has also given animal spirits a boost. An endless stream. Citi strategist Scott Chronert captured this countercurrent over the weekend: “All in all, the S&P 500 continues to be exposed to structural growth opportunities in generative AI as an offset to the complex macro picture. The constructive fundamentals have not changed. Regardless. , some key sectors on the market’s wheel of fortune will shift in the coming week: Apple’s highly anticipated developer event will detail its artificial intelligence strategy, and the stock will be at the top of its one-year range, two times before its peak. Another CPI report will examine whether the “sticky inflation” or “normalization” camp dominates. As the Federal Reserve is about to hold its full-year monetary policy collective forecast, it will hold a meeting to maintain interest rates at assumed cycle highs. As long as the U.S. economy overachieves and corporate profits recover, the market will accept this stagnation. The promise of a rate cut is likely, if not imminent.
