A broad rally across the whole market
The S&P 500 (SPY) crossed 7,800 for the first time this morning. The Russell 2000 (IWM) hit intraday highs too. This is not a surprise. I have been bullish all year, and my latest note, published Monday, is called "the everything rally."
Market breadth keeps getting better. More sectors take part in pushing stocks to new all-time highs. For most of this year it was an either/or trade: one group led while another lagged, with heavy rotation. Now leadership is broad, coming from technology (XLK), rate-sensitive sectors like consumer discretionary (XLY) and utilities (XLU), and traditional cyclicals like industrials (XLI) and materials (XLB).
Bullish on tech and everything else at once
I am bullish on technology, not choosing between it and the rest. That is a big shift from recent months. Tech will rise along with other things. Industrial, tech-adjacent AI plays are part of the "everything" group, plus certain utility stocks, financials (XLF), and consumer discretionary.
The main reason non-tech should do well is an out-of-consensus view on oil and rates: both stay range-bound. Consensus is very worried about a jump in the 10-year Treasury yield. I disagree and think rates stay in their current range. On oil, the war is having a harder time keeping prices high, and prices will head back toward the oversupply they were in before the war. Oil should stay in the 70s and 80s.
Not fearing rates and oil is what gives me conviction on consumer sectors, cyclicals, and rate-sensitive sectors. That drives the broad rally, helped by great earnings and a friendlier macro backdrop. If rates stay controlled, the Fed does not have to hike, and oil stays calm.
Why rates stay stable
What keeps rates so stable, given softer auction demand yesterday pushed the yield to its highest since 2007?
One factor is positioning: people who wanted to sell Treasuries have already done it. The auction result is noise, since Treasuries are the most liquid market in the world. The rate backed down today, so treating yesterday's weak auction as a predictor of long-term rates is specious. Rates are not something to worry about, and I am being proven right. While everyone worries, rates are doing nothing, and the stock market loves that because that fear is exactly what people were afraid of.
Another point: the last time the Fed hiked rates, long rates actually fell. So even if the Fed hikes, there is no guarantee long-term rates rise. The market may read a hike as the Fed getting serious about inflation, which can push long rates down.
The bottom line: if oil and interest rates stay in their current ranges, there is a catch-up chance for many non-tech sectors.
The case for technology
There is a strong case for tech too. It is clearly the earnings leader, and that will stay true through next year. It is also cheap, trading at about 22 times 12-month forward earnings. This is a great setup, and good macro setups this favorable are rare. Investors should enjoy the ride while it lasts.
Where to look inside tech
Within technology, where should you look - AI infrastructure buildout, bottlenecks, hyperscalers, or software?
All of the above. Software is getting back in the saddle. The market is differentiating the cybersecurity names, and there are strong institutional inflows into them (I track institutional money flow). The Mag 7 already had a major correction earlier in the year, look great, and proved it through earnings. AI-adjacent tech stocks and semiconductors (SMH) have well-understood earnings strength.
As a group there is a lot to like, whether picking stocks or using ETFs. Strength is broad. Some areas, like software, need you to be selective, but overall momentum in tech is very strong, and it has been supported by earnings this time around.
