We have very chaotic market action on Thursday as we await earnings tonight from Apple (AAPL) and Amazon (AMZN) .
What is most notable is that big-cap technology action is not confirming strength in the broader market. The DJIA has strong gains of more than 1% on strength in stocks such as Caterpillar (CAT) , Boeing (BA) , Honeywell (HON) , and McDonald's (MCD) . On the other hand, the Nasdaq 100 (QQQ) is down almost 1% on weakness in names such as Meta (META) , Align Technology (ALGN) , Vertex Pharmaceuticals (VRTX) , and Micron Technology (MU) .
This is a very unusual divergence, and it is going to be very interesting to see how it is eventually resolved. Will the big-cap technology names drag down the rest of the market, or will the broader market pull up the technology names that are lagging so badly right now?
Big-cap technology has been a leader for so long and is still quite pricey in many places, so closing the gap with the broader market is likely to be a very messy and volatile process.
The GDP report this morning showed headline growth of 2.6%, which is causing some celebration that the Fed policy may not produce a recession, but if we dig a bit deeper into the report, it becomes clear that real final sales to domestic buyers barely grew. Most of the growth is due to net exports of things such as weapons to Ukraine and oil and gas.
Overall the economy has been flat for the year, but there are signs of weakness in real estate that show that hawkish Fed policy is starting to have some impact. The rest of the economy is still holding up very well, and that means the Fed is likely to maintain its hawkish stance.
Bonds and a weaker dollar have been driving positive action in many stocks while growing concerns about growth are causing much of the pressure on big-cap technology.
It is a very unusual mix of action and is extremely challenging for stock-picking. There are very few pockets of strong momentum as most of the action is still macro and sector driven.
I'm doing very little right now, but I do like some of the chart development that I am seeing. The risk of some big swings is still very high as we await the next Fed interest rate decision and more economic data.
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