Can a market divided keep standing? Bulls attempt to find out
Stocks are telling a tale of two markets. It’s the best of times for technology investors and those involved in the artificial intelligence boom, as hyperscalers keep expanding their capex plans and chip stocks soar on demand for memory components and central processing units, or CPUs. And while it may not be the worst of times for retailers and consumer discretionary stocks, more cyclical businesses are staring into a macroeconomic maelstrom buffeted by insurgent inflation and rising energy costs. The division is showing up in stark relief on Wednesday as markets idle. Several big technology names like Alphabet and Nvidia are higher on the day while large swaths of the market – including industrials, real estate and consumer staples stocks – are modestly lower. Buoyed by the technology boom, major indices like the Nasdaq Composite , the Russell 2000 and the S & P 500 have all risen sharply over the past month, but analysts are spotting fragility underneath the top lines. “Beneath the surface of the popular averages, a fragile and contradictory macro environment exists,” analyst Craig Johnson at Piper Sandler wrote in a Wednesday note. “Twenty six-week new highs across our group work is primarily technology, with emerging signs of advance-decline lines diverging.” This divergence shows that there are fewer winners in equity markets, concentrated in semiconductors and AI infrastructure, Johnson said. The divided market is even more extreme over the past three months, on roughly the time scale of the Iran war. Chipmaker Micron Technology is up more than 93% over that period while do-it-yourself retailer Home Depot is down more than 23%. Analysts are sounding an alarm about deteriorating macroeconomic conditions underlying the tech-propelled equities rally. “We are increasingly gaining conviction that markets are reflecting a two-speed, bifurcating economy: an increasingly ‘Running Hot’ business investment and a larger but income-squeezed consumer,” analyst Thomas Carroll at Stifel wrote Wednesday. These worries are being compounded this week by hot prints in both the consumer price index and the producer price index . The PPI rose by an annual 6% in April, the largest 12-month uptick since December, 2022, the Bureau of Labor Statistics reported Wednesday. Consumer prices were up 3.8% annually in April, with the energy component contributing a 17.9% rise and gasoline prices up 28.4%. The average price of a gallon of gasoline is $4.51, up from about $3.16 a year ago, according to AAA . Global benchmark Brent crude is trading around $105 per barrel on Wednesday while West Texas Intermediate is at about $100. “Markets have been trading on Hormuz headlines but the economy is roaring back into focus,” Stifel’s Carroll said. “The economy was on strong footing when the War began, but likely continues fading into mid year.”
