Good morning,
As mentioned on Friday, the technology sector came under meaningful selling pressure last week despite a favorable backdrop of lower oil prices and declining bond yields. Rather than leaving the market altogether, capital rotated into more defensive areas of the economy—primarily Healthcare, Real Estate, Utilities, and Consumer Staples.
The divergence beneath the surface remains striking. Both the S&P 500 Equal Weight Index and the Russell 2000 Index reached fresh all-time highs last week, while the Nasdaq Composite fell below its 50-day moving average for the first time since early April.
When the primary engine of a bull market enters a profit-taking phase, the market’s message naturally becomes less clear. Unlike most corrections, however, this one has been remarkably concentrated so far. The same group of technology stocks that drove the market to its recent highs is now shouldering nearly all of the selling pressure. Meanwhile, much of the capital exiting technology has simply been redeployed into more defensive sectors rather than leaving equities altogether. The result is a market sending mixed signals—neither decisively bullish nor decisively bearish.
For now, last week’s conclusion still stands: the technology correction is likely to continue until a meaningful catalyst emerges. The most obvious candidate is the start of second-quarter earnings season, which unofficially begins on July 14.
The key event this holiday-shortened week will be Thursday morning’s employment report. With many institutional traders expected to begin extending their holiday ahead of the Fourth of July, trading volumes could become increasingly light as the week progresses, potentially amplifying market moves following the data.
Have a great week and a peaceful Independence Day holiday.
Be well,
Mike