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MarketSurge powers the charts in this video.

The indexes are at all-time highs. This didn’t stop the Fed from cutting rates by 25bps last week. Powell said they are moving from a restrictive to a neutral Fed policy because there are some signs of weakening in the job market. The stock market loved it. We saw the most speculative areas explode higher—Quantum computing, nuclear stocks, and robot stocks led the charge, but there were so many other movers. In the meantime, we saw the so-called “sell the news” reaction in the US Dollar and rates, which bounced.

Price action has become a bit frothy in some areas of the stock market, so I would not be surprised if we see a shakeout next week. Typically, shakeouts take the form of a sector rotation in bull markets. The odds are that it won’t be any different this time. Any significant pullbacks to rising 20, 50, or 100-day moving averages will still be seen as good buying opportunities where one can enter with a tight stop for a swing trade.

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Every time the AI group pulls back and one venture thinks that maybe its best performance is behind, we see another strong earnings report that proves that thesis wrong. Two weeks ago, it was Broadcom (AVGO) announcing a surprise new $10-billion client. Last week, Oracle (ORCL) reported massive expected future growth. Those two reports rekindled the momentum behind AI-related stocks. We saw AI data center equipment companies like VRT and MOD bouncing back; energy providers like CEG and VST recovering above their 50dma; semiconductors like ARM coming back to life. The AI group is as strong as ever.

In the meantime, we are entering the Fed’s week. The market has already priced in a 25bps rate cut. The question is what guidance the Fed will provide for future cuts. Some like to complicate things and believe that the market will pull back after an obvious event – buy the rumor, sell the news. The market has lately been more direct and has just continued in the direction of the established trend. Market breadth has expanded, including more groups – small caps, biotech, housing, and solar. Any corrections have been short-lived and tepid and typically taken the form of sector rotation – when one group pulls back, others step up. I expect more of the same. The one factor that might change market sentiment is the Fed’s comment on employment. The market trades on narratives. If all of a sudden, higher unemployment and recession become the new story, then we are likely to see more volatility. Not enough evidence for any of it yet, but something to keep an eye on.

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Disclaimer: Everything I share is for educational and informational purposes only, and it should not be considered financial advice. Read my full disclaimer here.

MarketSurge powers the charts in this video.

The dip buyers are not sleeping. The Nasdaq 100 (QQQ) tested its 50-day moving average and bounced quickly. Last week, we saw an uptick in volatility. Some high-momentum leaders, such as PLTR and HOOD, came under pressure; numerous bounces fizzled, and yet, we remain in a bull market: 

GOOGL had a big upside gap after it became clear that it wouldn’t have to split the company due to antitrust issues.

Broadcom (AVGO) provided a big upside in revenue guidance after revealing a new ten-billion-dollar client. For the first time in a while, this didn’t lead to a rally in the entire semiconductor space. NVDA pulled back 3%, and AMD dropped 6%. One has to wonder if we have entered an environment where the market is viewing one company’s wins as other companies’ loss of opportunity. 

The employment report came below expectations again. June was revised to negative. Interest rates plunged. The odds of the Fed cutting rates have increased. The groups that would benefit the most from lower interest rates outperformed significantly last week – house-related stocks (builders, furniture, mortgage), biotech, and solar.

Financials are also supposed to benefit, but they were slammed on Friday. The reason – unemployment is ticking up, which means more potential losses for banks from clients who stop paying. It makes sense. It is a different question if homebuilders are also going to be impacted – at this point, the market is excited about lower rates and is probably not going to think about the implications before the next earnings season.

Biotech had one of its best weeks this year. Lower rates mean lower cost of capital.

Solar is also highly dependent on rates, but it also has another catalyst going for it. The average price of US electricity has gone up more than 30% in the past four years to 19 cents per kWh. The build-up of AI infrastructure is likely to sustain this uptrend. The cost per kWh (kilowatt-hour) for nuclear is 0.03 to 0.05 cents; for solar is 0.06 to 0.10 cents.

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Disclaimer: Everything I share is for educational and informational purposes only, and it should not be considered financial advice. Read my full disclaimer here.