Weekly Risk Signals

The extended rally in tech and growth is keeping short-term momentum in the risk-on direction and the inclusion of cyclicals in last week’s action is an encouraging sign for market bulls. There are a couple of market dynamics, however, that could be worth watching this week. The first, not surprisingly, is NVIDIA. The second is lumber.

This is quickly turning into an incredibly unbalanced market (if it wasn’t there already). How does any of this end well? Investors keep ignoring the growing list of market risks and plowing their money into a handful of stocks at the risk of an extreme concentration bubble. This is turning into a case of investors willfully ignoring some very visible risks in order to squeeze more blood out of the turnip.

The markets have shifted from a mixed market with defensive undertones, based on the behavior of utilities and Treasuries, to a tech-led one that looks very similar to 2023. The utilities rally looks like it’s fizzled out for now as nearly everything interest rate sensitive took a hit and that’s shifted short-term conditions back to neutral from more risk-off. The S&P 500 and Nasdaq 100 continuing to test new highs is overshadowing a lot of underlying weakness in U.S. equities.