Can technology help create a market bottom?

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(Monday Market Open) The bulls look set to make another run to the March lows around the 4,200 level as the S&P 500 Futures Contracts gained more than 1% before the opening bell. Stocks appear to be rebounding after Friday’s supportive Fed jobs report signaled the Fed had no reason to scale back its aggressive rate hike plans. Friday will be another big data day this week with the May Consumer Price Index (CPI) updating the picture for inflation in the United States.

Market potential movers

Although stock index futures are pointing higher, the Cboe Market Volatility Index (VIX) was also higher in pre-trade trading, perhaps suggesting Monday morning’s uptrend isn’t as strong as it looks. The 10-year Treasury yield (TNX) was about 1.5 basis points higher pre-market, which could be a bit of a drag on growth stocks.

Chinese markets had a mostly positive Monday as Beijing lifted a number of COVID-19 related restrictions along with Shanghai and a few other provinces. The Hong Kong Hang Seng rebounded 2.71% and the Shanghai composite increased by 1.28%. China could get additional support as Washington seeks tariff relief, though some fear such relief could run counter to the Fed’s inflation-reduction goals.

Speaking of inflation, Brent crude oil futures hit $120 a barrel on Friday. With oil futures trading slightly lower on Monday morning, China’s comeback may boost oil demand. On the supply side, we learned last week from OPEC+ that they would increase production slightly to help offset the loss of Russian oil supply, but sanctions on Russia are leaving a hole in oil markets. .

Some stocks are also moving. Amazon AMZN begins trading at its new stock split price this morning. The company split its shares 20-to-1 and is expected to trade around $122 per share post-open.

With earnings season now in the rearview mirror, the earnings calendar is relatively empty, but there are some notable stragglers this week. This morning, Sanderson Farms (NASDAQ: SAFM
SAFM) rose 1.6% in premarket shares after beating earnings and revenue estimates.

Market Minutes Review

Equities ended the week on a negative note with the Nasdaq Compound ($COMP) down 2.47% on Friday, followed by the S&P500 (SPX) at 1.63% and the Dow Jones Industrial Average ($DJI), which closed down 1.05%. The Nasdaq ended the week down 1% from last Friday, while the S&P 500 lost 1.2% and the Dow Jones fell 0.9%.

Shares were pulled lower on Friday by You’re here TSLAwhich fell 9.22%, and Apple AAPL, which fell 3.86%. Tesla fell on CEO Elon Musk’s bearish comments about the weak economy. Apple came across the news of Morgan Stanley MRS analysts who expressed concern over declining App Store sales.

The industrials sector was the best performer for the shortened trading week as the Industrial sector selection index advanced 1.62% since Tuesday’s open. It was followed by Materials Select Sector Index, which gained 0.45%. Defensive sectors, including utilities and health care, were the week’s worst performers.

May was again dominated by the energy sector, which Energy Selection Sector Index skyrocket over 13% more. The Utilities Select sector index was second, up nearly 4.5%. The Consumer Discretionary sector was the worst performer, with Index of Selected Consumer Discretionary Sectors closed the month down 6.32%. However, the consumer discretionary index lost more than 17% over the month before recovering some lost ground.

May’s performance was a microcosm of the overall sector performance from January 1 to May 31. Energy Selection Sector Index finished at the top of the month with an increase of nearly 46%, followed by the Utilities Select sector index at 4.62%. As of May 31, these are the only two selected S&P sector indices in the green since the start of the year (YTD). The Index of Selected Consumer Discretionary Sectors fell more than 26% since the start of the year, followed by the Technology sector selection index at 19.26%. That said, consumer discretionary, technology and real estate are the only underperforming sectors. S&P500 (SPX).

CHART OF THE DAY: COMPONENTS. The Technology Select Sector Index ($ IXT — candlesticks) has fallen about 15% over the past six months. Although all industry groups fell, they did not fall at the same rate. Computer services ($SP500#451020—grey) fell 5.65%, technology hardware, storage and peripherals ($SP500#452020—pink) fell 9.61%, communications equipment ($ SP500#452010—red) fell 17.31%, Electronic Equipment and Instruments ($SP500#452030—orange) fell 17.5%, Software ($SP500#451030—blue) fell 19.18 % and Semiconductors & Semiconductor Equipment ($SP500#453010—yellow) plunged 21.45%. Data sources: ICE, S&P Dow Jones indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Three things to watch out for

Short circuit: Despite the much-talked-about chip shortage, semiconductors have underperformed the market and the technology sector. Semiconductors have been unable to take advantage of the chip shortage in part because of COVID-19 lockdowns in China and the time it takes to bring new factories up and running.

Today, with many analysts and companies seeing a potential downturn in the economy, semiconductors could continue to struggle. Thursday’s car and truck sales report is an example of how the chip shortage is actually contributing to the economic slowdown. The automotive industry has been hit hard by the chip shortage, and many new vehicles are waiting for the chips to arrive. Almost every automaker reported a double-digit drop in sales over the past year because automakers couldn’t get cars to market. The declining supply of cars and trucks has driven up prices, making new vehicles less attractive to consumers who are already feeling the pinch of inflation.

Friday, chipmaker Micron (MU) fell 7.12% on Friday after being downgraded by Piper Sandler, who cited a weaker consumer as one of the reasons for her downgrade.

Technical staples: The IT services group includes data processing and outsourced services such as payment processors. In the S&P 500, the group includes payment processors like Visa V Where PayPal PYPL but also payroll companies like Automatic data processing ADP and Payment PAYX. Additionally, technology consulting firms like IBM IBM and Accenture ACN fall into this group. Second, Internet service and infrastructure companies like VeriSign VRSN and Akamai MY BROTHER help complete the assortment.

While these companies have clearly experienced cyclical swings in their stock prices, the relative stability shows how the industry group is helping to provide a backbone for the tech sector. This makes it a staple of technology.

In tip: Many investors are hoping that the market is building a base or a trough where it can start a rally. Since technology is often a leading sector during market rallies, it makes sense to try to look at the performance of these individual industry groups to see if one or more will help lift stocks. However, each industry group is currently in a downward trend. This is why some investors liken selecting funds from the market to catching a falling knife. Therefore, looking for a potential reversal should be done with caution.

Notable Calendar Items

June 7: April Consumer Credit, US Trade Balance and JM Smucker Earnings SJMVerint Systems VRNTand Cracker Barrel CBRL

June 8: Campbell’s Soup Earnings pcb

June 10: May Consumer Price Index (CPI) and preliminary results from the University of Michigan Consumer Sentiment Index

June 14: Producer Price Index (PPI)

TD Ameritrade® Commentary for educational purposes only. SIPC member.

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investment advice.

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