Amid the buzz of the S&P 500 reaching 6,000, the broader market has some head-scratchers that just don’t add up. While the milestone is being celebrated, there’s an underlying story that’s both puzzling and worth dissecting: a massive outflow from US technology funds. Since early October, these funds have hemorrhaged over $5 billion, a figure twice as dire as those at the start of the 2022 bear market. Yet somehow, the market charged forward, posting its strongest week of the year.
Tech has been the backbone of the stock market’s recent history, usually propping up gains when the going gets tough. But last week, the S&P 500 found itself rallying despite technology stocks cooling off. On Friday, the S&P surged, while the tech sector dipped 0.11%. It’s a scenario that doesn’t sit well with what traders usually expect. Historically, such a bullish push without tech at the forefront is far from normal.
There’s a silver lining for those keeping close tabs on trading signals. An alert from October 18 had already flagged that the S&P 500 might hit 6,000, and that target came to fruition despite tech’s underperformance. Those following these insights are seeing considerable returns, clocking a hefty 1,500 points on S&P trades since August. Yet, the market’s unusual buoyancy continues to fuel questions: Can the rally sustain itself without tech, or is this a mere momentary lapse?
One explanation lies in how the rally is broadening. It’s no longer confined to a few tech giants but is spreading across various sectors. This broadening effect, while encouraging on one level, doesn’t erase concerns. Many indicators suggest that the S&P 500 and several sectors are approaching overbought territory, signalling caution for the days ahead.
It’s also been a time of feverish activity in the exchange-traded funds (ETFs) landscape. Since the recent election, traders have flocked to ETFs in droves. The Russell 2000 ETF, for instance, saw an eye-watering $3.9 billion inflow in a single day, a record-setting level not seen in 17 years. Similarly, the S&P Regional Banking ETF drew in $1.3 billion, and the Financial Sector ETF raked in $1.6 billion—the highest since 2016. In total, nearly $18 billion has been funnelled into US equity ETFs since the election, a staggering 16 times the daily average. These figures underline a level of risk appetite that’s near fever pitch.
Bitcoin is another sign of the broader risk sentiment. The cryptocurrency hit $80,000, marking a 114% rise over the past year and a record-breaking market capitalisation of $1.57 trillion. As risk assets like Bitcoin continue to soar, the appetite for speculative plays seems boundless. But for all this optimism, caution remains necessary.
The coming week has some critical events on the horizon, and traders are keeping a close eye on them. Inflation figures are back in the spotlight, with the Consumer Price Index (CPI) and Producer Price Index (PPI) updates expected. The last CPI reading revealed a core increase to 3.3%, stoking worries about how the Federal Reserve might respond. Given this backdrop, even slight deviations in inflation data could set the tone for market sentiment in the short term.
Political developments could also influence the market. As details about fiscal policies from the Trump administration come into sharper focus, traders are bracing for any shifts that could sway the S&P 500 and other indices. The recent strength in equities, especially amid straight-line price advances, is not sustainable indefinitely. What happens next depends significantly on external catalysts, including central bank decisions and economic data.
Yet, as strange as the market moves have been, they may also reflect shifting investor strategies. While tech had been the darling sector, traders might be rotating into other areas, hoping for fresher opportunities. ETFs tied to regional banks and smaller companies are reaping the benefits of this rotation. It’s a dynamic that speaks to the market’s evolving character.
However, anyone who has watched the markets long enough knows that abrupt rallies come with their share of risk. Momentum built on shifting sands—especially without tech’s support—could be vulnerable. For now, the best approach might be to watch the data and tread cautiously.
While the S&P 500’s climb has made headlines, the tension between record highs and massive tech outflows is hard to ignore. It raises fundamental questions about the sustainability of the rally. Investors are pouring billions into ETFs, and Bitcoin is enjoying an unprecedented run. But as core economic data and central bank decisions loom, this optimism faces its sternest tests yet.
Could it be that the market is simply in a phase of temporary euphoria? Or is this the start of a broader, tech-less bull run? Either way, it promises to be a rollercoaster ride, with the stakes getting higher as each trading day unfolds.
