Technology stocks do not correlate with the market and rise separately
The 10-year US Treasury yield (10Y futures) jumped 9 basis points on Wednesday to 3.945%, the highest level since just before the mini-bank panic in March.
In essence, this confirms the Fed's announcement in the minutes of the June FOMC meeting today that "nearly all" Fed members expect further rate hikes this year, despite last month's pause. The 10-year US Treasury yield has risen sharply, breaking the resistance of the trend line as a result of a significant technical break of the multi-month downtrend.
Meanwhile, the tech sector suffered slightly in line with historical correlations (as tech stocks tend to favor lower rates). However, some AI-hyped names such as Microsoft (MSFT) avoided the loss, while Alphabet (GOOGL, GOOG) managed an impressive 1.7% profit. (Nvidia shut down, but its losses were limited to a measly 23 basis points.)
The bubble economy seems to outperform real world factors when it comes to stocks. And the technical data suggests the bull runs are not over yet.
On the candlestick chart, the semiconductor ETF (SOXX) is growing much faster than the American market - the SP500 index, blue line.
Not even the mini-bank panic could derail the growth of companies benefiting from the AI press. Perhaps the Fed's provision of liquidity to support the banking sector is now helping to fuel the general bullishness that is no longer limited to a few mega-cap stocks and the AI theme.
Looking at the real economy, differences persist. It's no secret that manufacturing is in a global downturn, but consumers around the world are boosting the economy by spending on services.
This helps explain why the S&P 500 is up 16% this year, while industrial metals, copper, are down 13% from their January peak.
Time tends to correct most imbalances and irrationality in the markets, but Lord Keynes taught us (perhaps) that markets can remain irrational much longer than most investors can remain solvent.
Eventually, the manufacturing and service sectors will level off again. The problem is that we do not yet know when, or even the direction.