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Whichever road you choose, the signs say large-cap tech ahead



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Wall Street's main indexes gain; Nasdaq out front, up ~0.9%

Tech leads S&P 500 sector gainers; Real Estate weakest group

Dollar edges down; gold, bitcoin dip; crude up 1.7%

U.S. 10-Year Treasury yield rises to ~4.28%

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com



WHICHEVER ROAD YOU CHOOSE, THE SIGNS SAY LARGE-CAP TECH AHEAD

Based on the release of the Fed's new dot plot last week, you might think the economy is rolling along just fine.

However, initial unemployment claims are telling another story. Initial claims hit 242k last week, well above the 225k estimate, and the four-week average of claims is now trending upward once again.

"The last time this happened, most of the Street, including us, were expecting a recession. The current trend isn’t strong yet, but other labor data is looking weaker as well. Might the second time be the charm?," writes Philip Palumbo, founder, CEO and chief investment officer at Palumbo Wealth Management in a research note.

According to Palumbo, for the time being, bad economic news (a weaker labor market) is good market news (rate cuts could be coming faster) so the market continued to rally late last week, although with tempered enthusiasm.

He notes that although the S&P 500 has been up, it is once again due to the performance of large technology companies. In fact, he says overall market breadth is "miserable."

As Palumbo sees it, weak market breadth is not especially illogical. If you are concerned about a growth scare, where do you hide?

"In secular growth stocks that are insulated from the economic cycle. In other words, the large cap tech companies," says Palumbo.

On the other hand, if the economy continues to hum along, and AI increases productivity and earnings growth, where is the strongest growth likely to be?

"The large cap tech companies! For now, whatever your stock market question, all roads lead to large cap tech."

That said, Palumbo cautions that nothing lasts forever. While there is currently a laser focus on AI and what it can do, or will be able to do, there will come a time when the big tech companies, that is, the big AI companies, will have to show a return on their massive investment.

"That is when the winners begin to separate from the losers, but for now, all roads lead to Rome," he writes.


(Terence Gabriel)

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CHINA FAILS TO CHEER, AS FRANCE SCORES OWN - CLICK HERE










(Terence Gabriel is a Reuters market analyst. The views expressed are his own)

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