Wall Street Near Record Highs, Tech Sector Faces Potential Pullback

Despite speculation of rate cuts, Wall Street has seen record highs, driven partly by robust economic indicators and corporate earnings. However, profit-taking is anticipated, particularly in the tech sector, following strong performance this year.

On Friday, the S&P 500 and Nasdaq closed slightly lower due to a decline in Nvidia (NASDAQ:NVDA) shares, which affected the technology sector the most among the 11 major S&P 500 sectors. Communication services led the gains.

U.S. stock index futures saw a modest rise on Sunday evening, with indexes near record highs as investors awaited key inflation data to gauge interest rate trends. Wall Street was impacted by unexpectedly strong purchasing managers index readings from the previous week, raising concerns about a robust U.S. economy and the Federal Reserve's potential to keep rates high.

Nvidia fell 3.22%, and semiconductor stocks Qualcomm (NASDAQ:QCOM), Broadcom (NASDAQ:AVGO), and Micron Technology (NASDAQ:MU) also dropped between 1.36% and 4.38%. Nvidia has secured a deal to implement its AI technology in Ooredoo's data centers across five Middle Eastern countries, marking its first large-scale deployment in a region where the U.S. restricts the export of advanced chips to prevent access by Chinese firms. Analysts are cautious about whether the high valuations of stocks driving Wall Street's gains, particularly those linked to AI, are sustainable.

Spirit AeroSystems (NYSE:SPR) shares increased by 6.00% after reports that Boeing (NYSE:BA) is close to acquiring the company. Sarepta Therapeutics (NASDAQ:SRPT) soared 30.14% following FDA approval for expanded use of its gene therapy for Duchenne muscular dystrophy.

Meta Platforms (NASDAQ:META) is in talks to integrate its AI model into Apple's (NASDAQ:AAPL) new AI system for iPhones, according to the Wall Street Journal. Apple is also considering partnerships with other AI companies, including Anthropic and Perplexity, to integrate generative AI technology into its devices. These discussions could enhance the distribution of AI products and involve selling premium subscriptions through Apple Intelligence. Apple's new AI strategy emphasizes privacy and includes integrating AI technology across its apps, including Siri, and incorporating ChatGPT.

Investors are optimistic about the long-term prospects for tech stocks due to their strong earnings and the transformative potential of artificial intelligence. However, substantial price increases, like Nvidia's 155% rise this year, have sparked concerns that the tech rally might be overextended. Market laggards, including small caps and value stocks like financials and industrials, may appear undervalued. Despite this, if a pullback occurs, analysts believe that investors are unlikely to abandon tech and growth stocks for long. The Nasdaq 100 index has risen over 400% in the past decade, compared to about 70% for the Russell 1000 Value. Tech stocks could quickly rebound as investors look to buy at lower prices.

Deutsche Bank strategists predict another potential pullback in the S&P 500, having accurately forecasted a previous decline in April. They cite three key indicators: a sharp increase in equity positioning among funds, nine consecutive weeks of equity fund inflows, and the approaching buyback blackout period, which limits companies from repurchasing shares before releasing quarterly earnings. These factors suggest the market may pause, as significant equity inflows and high fund exposure, coupled with reduced stock demand during the blackout period, could halt the market's rise.

On the other hand, Goldman Sachs strategists have highlighted concerns over potential tariffs affecting U.S. companies with significant international operations as the U.S. election approaches. They warn that tariffs could pose challenges due to retaliatory measures and geopolitical tensions, impacting stocks heavily reliant on international revenues and suppliers. The strategists noted higher implied odds for a Trump presidency compared to Biden, suggesting tariff increases might be more likely under Trump. They advise investors to monitor election developments closely, particularly for companies with substantial international exposure.

The U.S. Treasury Department has introduced draft rules aimed at restricting certain investments in AI and other technology sectors in China, citing national security concerns. These rules, stemming from an executive order by President Biden, would require U.S. entities to assess and possibly restrict transactions that could aid China in developing advanced technologies. The rules target investments in semiconductors, microelectronics, quantum computing, and AI, aiming to prevent U.S. technologies from enhancing China's global competitiveness, especially in military applications. Public comments on the proposed rules will be accepted until August 4, with implementation expected by year-end.

Market attention is currently focused on upcoming PCE inflation data, a crucial indicator for the Fed's monetary policy decisions. Expected to show a slight cooling but remaining above the Fed's 2% target. Key earnings reports from companies like FedEx, Micron Technology, Nike, and Walgreens Boots Alliance are also anticipated this week, providing further insights into economic trends.

Data for Technical Analysis (1D) CFD US30 DJIA

Resistance : 39174.3, 39180.8, 39191.3

Support : 39153.3, 39146.8, 39136.3                          

1D Outlook

Source: TradingView                 

Buy/Long 1 If the support at the price range 39093.3 - 39153.3 is touched, but the support at 39153.3 cannot be broken, the TP may be set around 39174.3 and the SL around 39063.3, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 39174.3 - 39234.3, TP may be set around 39262.0 and SL around 39123.0, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 39174.3 - 39234.3 is touched, but the resistance at 39174.3 cannot be broken, the TP may be set around 39146.1 and the SL around 39264.3, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 39093.3 - 39153.3, TP may be set around 39060.0 and SL around 39204.0, or up to the risk appetite.       

Pivot Points Jun 24, 2024 07:39AM GMT

Sources: Investing 1, Investing 2