Dow Hits All-Time High as Money Rotates Out of Big-Cap Tech
It was a misleading day with the DJIA covering up plenty of poor performance under the surface.
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The Dow Jones Industrial Average (DJIA) had its fourth straight day of gains and hit a new all-time high on Wednesday, but it masked weakness in big-cap technology, AI and other sectors such as data centers, quantum computing and nuclear power.
The market has been undergoing a transition in leadership, causing plenty of pain for investors holding the stocks that performed best for most of the year.
The big winners on Wednesday were airlines like United Airlines (UAL) , anticipating the government reopening, pharmaceuticals and banking. Goldman Sachs (GS) was responsible for much of the DJIA's strength due to its weighting of more than 10%. It does not have the highest market capitalization, but it is the most expensive stock, and that is what matters most in the DJIA.
It is peculiar market action, but the good news is that the weakness in the Magnificent Seven (MAGS) and other big-cap tech names is not dragging down the entire market. Money is rotating into other areas. The rotation is messy and inconsistent, but it prevents the indices from rolling over and helps to keep sentiment positive.
On the other hand, a deeper and broader correction would help clear the air and set up positive seasonality to end the year. Many investors are still looking for end-of-year strength, but the technical setup is not conducive to a sustained trend at this point.
I’d like to be more positive, but there is too much poor action on my screens, and the names that are doing well are mainly short-term bounces rather than sustained uptrends. There isn’t much clear leadership currently, although the biotechnology action is very strong for a second day in a row.
The reopening of the government is being fully priced into the market, so the question now is: What will be the next positive catalyst to send things higher? I don’t know the answer to that, but I will be watching closely.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
