Market Half-Full or Half-Empty?
Treasury Secretary Yellen accidentally spooked the financial markets today as she commented the Federal Reserve needs to raise interest rates as the government rolls out future stimulus spending programs. The stock market ended Tuesday mixed.
Technology stocks suffered significant declines. Nasdaq Composite Index (COMPQ) plummeted 261.61 points or -1.88%. The sharp sell-off occurred in many of the largest mega-cap Technology stocks, including Apple (AAPL – 4.72%), Microsoft (MSFT – 4.19%), Amazon.com (AMZN – 2.20%), and Alphabet (GOOGL – -1.55%).
The Dow Jones Industrial Average (INDU) managed to close the day with smaller gains (+19.80%). The S&P 500 Index (SPX) fell modestly or -0.67% today. The big-cap techs like AAPL and MSFT have dragged down the large-cap benchmark index.
Despite the recent new all-time highs in US Indexes such as SPX, INDU, TRAN, COMPQ, NDX, and MID, the stock market is trading at overbought levels, at least from a near-to-medium term basis. SPX Index has also achieved its average year-end 2021 projection of 4,100 coming from 15 major Wall Street firms. The marketplace continues to show a split market, with Technology and growth stocks weaker than the old, economically sensitive names. The sell in May and go away weaker seasonality trend is also upon us. The above conditions suggest investors are more selective, reluctant to chase stocks, and fearful of increasing volatility during the lackluster periods of summer to early fall.
If you are an optimist, you see the glass as half-full. However, if you are a pessimist, you see the glass as half-empty. Perhaps the old economy names will continue to strengthen, pulling the stock market to new record highs. But there is also the risk of continued weakness in the mega-cap Technology and growth names dragging the Nasdaq indexes and the SPX Index down, resulting in the current split market moving into a deep and more extensive correction.
It is interesting to note that Treasury Secretary Janet Yellen tried to retract her earlier comments of interest rates rising somewhat in the future. Will this help to stabilize the stock market tomorrow? Attached below are shorter-term charts of SPX, INDU, and COMPQ with key near-term technical levels to monitor in the days and weeks ahead.