Stocks Fluctuate as Big Tech Broadening Falters: Markets Summary

Market Performance & Breadth

Stocks encountered difficulties towards the end of a robust quarter predominantly led by high-flying technology shares. Recent attempts to expand beyond the megacap group were short-lived, as several measures indicated weak market breadth, raising concerns about the rally's sustainability. Data reveals a significant bifurcation between the S&P 500's performance and its breadth, one of the worst in three decades.

Heavy Reliance on Big Tech

"The stock market is overly dependent on big tech shares," said David Bahnsen of The Bahnsen Group. The recent volatility in tech shares could either signify deeper issues or a forthcoming reckoning. Excessive investor sentiment and momentum typically end similarly.

Market Movements

The S&P 500 remained near 5,470, with Nvidia Corp. experiencing fluctuations ahead of its shareholder meeting. Micron Technology Inc.'s earnings, driven by artificial intelligence (AI), are under scrutiny. FedEx Corp. saw a surge due to a positive forecast and buyback plans. Treasury 10-year yields surpassed 4.3% ahead of a $70 billion five-year auction, while the dollar reached its highest point since November. The yen weakened to its lowest since 1986, spurring intervention speculations.

Investor Sentiments & Strategies

Craig Johnson from Piper Sandler noted the market's 'Engine Warning Light' is flashing as summer approaches. Tech-heavy index investors feel the fear of missing out (F.O.M.O), while others experience regret of missing out (R.O.M.O) due to weak market breadth outside of a few mega-cap stocks. Johnson believes the S&P 500 is overdue for maintenance.

Mark Haefele of UBS Global Wealth Management holds a positive view on AI despite Nvidia's volatility, emphasizing the need to adjust tech exposure to navigate volatility while maintaining strategic exposure to growth-driving technology. Ryan Grabinski from Strategas expects the "Magnificent Seven" megacaps to dominate growth for the S&P 500 in the upcoming earnings season. However, he remains optimistic as estimates for other stocks improve starting in the third quarter, potentially signaling a sustainable bull market.

Valuation Risks

Bahnsen cautions against excessive stock valuations, considering them the largest current risk. He argues that an eventual correction in stock overvaluations is inevitable. Greg Swenson of The Leuthold Group discussed falling correlations as a consequence of a few stocks dominating indices, posing challenges for managers not correctly positioned in outperforming areas.

Bank Activities & Stress Tests

The largest US banks have been proactive, with the six biggest lenders repurchasing over $14 billion of stock in the first quarter, a significant increase compared to last year. The results of the annual bank stress tests, set to be released soon, usually influence how aggressively banks return capital to shareholders through dividends and buybacks.

Corporate Highlights

Interactive Brokers Group Inc. took a $48 million hit from a NYSE trading disruption and is exploring legal options for recovery. Whirlpool Corp. saw a surge after reports of a potential offer from Robert Bosch GmbH. McDonald’s Corp.'s plant-based burger test in San Francisco and Dallas did not succeed, impacting its partnership with Beyond Meat Inc. General Mills Inc. provided a disappointing sales outlook due to consumer pullback amidst rising supermarket prices. Southwest Airlines Co. lowered its unit revenue estimate for the second quarter, indicating ongoing challenges. Volkswagen AG is investing $5 billion in a tie-up with Rivian Automotive Inc. Airbus SE warned airlines of possible delivery delays owing to supply-chain issues.

Key Events & Market Moves

China's industrial profits Eurozone economic and consumer confidence US durable goods, jobless claims, GDP Nike earnings Japan's Tokyo CPI, unemployment, industrial production US PCE inflation, spending, and consumer sentiment Fed's Thomas Barkin speech

As of the latest trading data, the S&P 500 and Dow Jones Industrial Average showed little change, whereas the Nasdaq 100 rose by 0.2%. European and Global indices saw slight declines. The Bloomberg Dollar Spot Index increased, and the dollar saw gains against the euro, pound, and yen. Bitcoin and Ether registered minor declines. Bonds saw yields rise across the US, Germany, and Britain. In commodities, oil and gold experienced slight declines.