Fresh highs and bifurcated, top-heavy tape
(These are the market notes on today’s action by Mike Santoli, CNBC’s Senior Markets Commentator. See today’s video update from Mike above.) The headline indexes holding their breakouts from their two-week range and extending to fresh record highs, though we’re back this week to a sharply bifurcated, top-heavy tape. The Nasdaq 100 up 0.8% on the day and 2.6% for the week, while the equal-weight S & P 500 was down 0.9% this session and slightly negative this week. It’s nothing that indicates imminent danger for the rally, but it hints at a reversion to an “AI above all” mode for this phase. Unless and until proven otherwise, of course. The news flow in the AI infrastructure realm has been manic and almost entirely additive to the enthusiasm toward the theme, whether the terms of Microsoft ‘s ownership of OpenAI in the latter’s restructuring or Nvidia sprinkling its surplus cash on potential customers. A result is the semis have again grown quite stretched relative to the group’s own longer-term trend, the SOXX Semiconductor ETF now farther above its 200-day moving average than it was in July 2024, right before a significant though far from fatal correction. Apple and Microsoft touching the $4 trillion market-cap threshold on the same day is in a sense fitting — they’ve been the two steadiest mega-compounders in tech over the past decade. Different business mixes and product cycles, but a very close cadence in wealth creation. Real-time market-cap landmarks are inherently abstract and imprecise. Apple, for one, has been buying back 100 million shares per quarter so we’ll probably learn with its earnings report Thursday that its market cap wasn’t quite as high. And, for what its worth, Apple has never crossed a $1 trillion threshold and stayed above it, always retracing lower again by $150B or more before securely surmounting it. The key debate emerging in the markets is whether signs of softness in segments of the consumer economy, in housing and pockets of lending are temporary/contained or not. The bullish case requires that the Fed rate reduction tomorrow is an “insurance cut” or “bonus cut” rather than part of a more urgent support effort for a faltering economy. Equal-weight consumer cyclicals were soft Tuesday, as were regional bank s. Nothing alarming, but worthy of attention. Some attention too heading into the Fed decision on the timing of an end to quantitative tightening, the passive shrinking of its balance sheet. Some hints of tightness in short-term money markets lately have spotlighted a system perhaps running low on reserves, one reason smaller lending stocks were hit a couple weeks back. Here again, there’s no emergency but a potential stress point. Could a savage reversal in gold from mega-overbought readings have gone any more smoothly? The price has now fallen $400 an ounce in a few days. There was some valid concern that the final leg of its ascent had grown so steep and unstable with fast-money momentum that a break in the trend could destabilize other assets. Seems for now entirely an unfounded worry. Big picture, it’s hard to fight hard against the upward tendency for equities, even given some overheated pockets and unimpressive participation by many stocks. The prevailing inputs: Strong years tend to end strong, earnings are easily surpassing forecasts, the Fed is about to cut with 3% inflation and a 4.3% unemployment rate, the capital flows into AI are escalating, oil prices are suppressed, bond yields undemanding.
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