Source: Barron's Author: Randall W Forsyth

“It's a world dominated by Nvidia, and we're just living in it”, and many people feel this way when a stock seems to be the only important stock in the stock market.

Last Thursday (May 23)$S&P 500 Index (.SPX.US)$It fell 0.7%, while announcing financial reports that exceeded expectations$NVIDIA (NVDA.US)$It rose 9%, and the market capitalization surged 277 billion US dollars in a day, setting a single-day growth record. The market capitalization reached 2.59 trillion US dollars, more than$Amazon (AMZN.US)$und$Tesla (TSLA.US)$The sum of the sums becomes the continuation$Microsoft (MSFT.US)$und$Apple (AAPL.US)$The third-largest company by market capitalization after ($3.06 trillion and $2.85 trillion, respectively).

However, the market declined last Thursday. Jeff DeGraaf (Jeff DeGraaf), chairman and head of technology research at Renaissance Macro Research, pointed out on the podcast last Friday that only 10 of the 65 technology stocks in the S&P 500 index rose along with Nvidia. In addition, the S&P 500 index also experienced an outside-day reversal, that is, the stock index hit a higher high point than the previous trading day, but closed at a lower low point.

This doesn't necessarily mark the top of the stock market, but it's an overbought technical indicator that usually means short-term consolidation. DeGraf said, “I'm not going to interpret this too much, but it shows that Nvidia's financial report that exceeded expectations was expected. The market was sold net rather than bought.”

However, it does indicate that the path of the US stock market continuing to rise to new highs is narrowing further. Capital Economics economist Jonas Goltermann (Jonas Goltermann) said, “But history shows that the rise in the stock market led by a small number of stocks may continue for several years.” “This was the case with the internet bubble in the 1990s and the rise driven by big tech stocks in the late 2010s,” he wrote in a note to clients.

There are also some other disturbing technical inconsistencies. In particular, the trend of transportation stocks is clearly lagging behind. According to the Dow Theory (Dow Theory), the trends of the Industrial Average and Transportation Average must match to confirm the formation of a certain market trend. However, while the Dow Jones Industrial Average hit the 40,000 mark last Friday,$Dow Jones Transportation Average (.DJT.US)$I've been arranging sideways.

Market research firm Yardeni Research believes that although the Dow theory has a long history, differences in transportation industry and overall stock market trends may reflect the increasing importance of services and technology in the US economy. “Businesses don't need trucks to provide cloud computing or streaming services.”

Quincy Krosby (Quincy Krosby), chief global strategist at LPL Financial, said that some analysts believe that the semiconductor industry has replaced the transportation industry and is a better indicator of the state of the economy because chips are embedded in almost every component of the US economy. Crosby pointed out that both the semiconductor industry and the transportation industry are weather vane indicators of economic activity. A record 3 million Americans are expected to fly on the weekend of Memorial Day (Memorial Day), which can prove that airline business has been booming, while truck and rail traffic is either flat or declining due to reduced inventories.

However, what scared the stock market the most in the past week was the rise in US Treasury yields, because the time for the Federal Reserve to cut interest rates was postponed once again. The newly released employment data shows that the job market is still strong even after statistics were abnormal a few weeks ago. At the same time, the initial value of the purchasing managers' index for May showed strong performance in both manufacturing and service industries.

As of last weekend, the CME Federal Reserve Watch (FedWatch) tool shows that this year's federal funds rate will only drop 25 basis points from the current range of 5.25% to 5.50%. There will be no second rate cut until the policy meeting at the end of January next year, and the futures market previously expected the second rate cut to arrive in mid-December this year.

With short-term US Treasury yields well above 5% and two-year US Treasury yields slightly below 5%, investors can choose to stay away from the stock market for the rest of 2024, buy risk-free short-term US bonds, and enjoy returns comparable to Wall Street strategists' expectations.

According to Morningstar (Morningstar) data, the median year-end target price given by Wall Street strategists for the S&P 500 is 5,400 points, which is only 1.8% higher than last Friday's closing price of 5304.72 points. Even considering the S&P 500's dividend rate of 1.35% over the past 12 months, the 5.38% yield on 6-month US bonds is comparable to the median target price given by strategists, and investors don't have to face the uncertainty before the November election.

Don't forget the saying “sell in May.”

edit/lambor