The Traveling Trader
Founder of The Traveling Trader, Market-Open Livestreams
The rest of the US stock market is likely to rally to catch up with tech, which alone is holding the indices near all-time highs. Other sectors sit 5-17% below their highs, and the equal-weight S&P 500 is down 7% versus 2% for the S&P 500. Such a bifurcated market is not rare, and most of the time the lagging sectors rally significantly to catch up. x.com x.com
The S&P 500's pain trade now looks to the upside, with a big short-term move higher possible in the week or two after the FOMC. Sentiment is weak, fear surrounds both outcomes, stocks making 52-week highs versus lows are at a yearly low, and SPY and several megacaps are coiled in descending channels. Warsh's lack of guidance made the meeting a coin flip: bonds price a 92% hike chance, yet core CPI is 2.4%, lowest since March 2021, with headline 3.4% driven by an Iran oil supply shock. x.com
A breadth thrust and fresh buying point to at least a multi-week rise in US indices, most probably a big rally for a few months after the midterms. LS Breadth is flipping bullish as the bear count falls; more stocks are starting uptrends and first consolidations. The Nasdaq 100 is bouncing with strong breadth, and the S&P 500 looks ready to leave a massive base. The Nasdaq 100 could sell off at declining averages but should rise if broad selling does not return. x.com
Hyperscaler credit stress and weak financials-versus-staples leadership warn of downside risk in the S&P 500 consolidation. Spreads have broken July wides, though an upside breakout is probable if financials stabilize. So far, tech weakness has lowered yields as Fed hikes are priced out, letting defensives rally and the S&P chop. If the Fed signals Nasdaq weakness won't stop tightening without better data, the tech-yield link could break in an uncomfortable, 2018-like direction. x.com x.com … Show more
The cap-weighted S&P 500 remains exposed to tech and AI unwinding because technology still weighs more than at its 2000 peak. Its tech weight has slipped from a record 40% two weeks ago to 37.6%, but the 2000 peak was about 34%, making further unwinding most likely. x.com
Rising S&P earnings revisions and a Nasdaq valuation far below the 2000 bubble level argue against a bull trap in US large caps. Nasdaq trades at 18x forward earnings versus over 80x in 2000. Positive breadth divergences, record short ETF exposure and put volume, and semiconductors waking up add to the case. In all 19 post-midterm instances cited, markets were very green over the following 12 months. x.com x.com
Improving breadth and GPUs massively outrunning depreciation costs put US-equity risk/reward heavily in bulls' favour. Some 59% of S&P 500 stocks are above their 50-day average; the Nasdaq 100 is positive over five trading days, and small caps bounced off their 200-day average. Buy gradually, as the selloff may not be completely over. x.com
The S&P 500 rally depends heavily on a few stocks, leaving the broader US market exposed if those leaders correct. Ten stocks accounted for about 70% of its gains since March 30; Nvidia, Apple, Microsoft, Micron, AMD and Alphabet are among the largest drivers. x.com
US large-cap equities do not look like a bubble at current forward valuations. The S&P 500 forward P/E is below both its five- and ten-year averages, while tech and momentum have suffered their worst five-month decline by far. x.com
Broader participation, earnings growth and lower multiples support US equities into year-end, with seasonality also favorable. The equal-weight S&P rose 1.95% this week while the cap-weighted index slipped 0.05%; EPS is up 38% so far and multiples are down 17% year to date. The 10-year yield fell 41 basis points. x.com
US large-cap equities face an AI-leadership valuation reset, not yet a recession selloff. AI capex is outrunning visible monetization, and semiconductors were the most crowded trade in Bank of America's July survey, so stocks can beat estimates and still fall. Brent near $100 and a 4.68% 10-year yield compress multiples, and the S&P 500 entered at about 20.1x forward earnings versus a 19.0x 10-year average. Big Tech earnings and the late-July Fed meeting will decide if a deeper reset follows. … Show more
Post-midterm seasonality and hedge funds' flip from long to short make this reset the next great opportunity to build for a bull market driven by the Innovation Revolution. Since 1950, the S&P 500 has gained 29.9% on average over the next 15 months in all 19 comparable years. This selloff looks pre-war driven; military action looks nearly certain and may be the most anticipated and discounted ever. A 90-day, 32% Nasdaq bear market preceded the dot-com era's final 18-month melt-up. x.com x.com
