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US equity on a bull run as big tech finds its mojo

Chris Weston
Head of Research
Feb 8, 2023
In recent days we’ve heard bearish equity calls from prominent strategists at Morgan Stanley, JPM and Goldman Sachs all calling for lower levels in equity markets – as with any market call, it’s the logic and rationale that is of most interest, and it’s the idea that the investment bank sales team pitch to their clients.

These calls help market players become more aware of the triggers for a move, but what the market does can often be another thing.

In reality in trading, price is all that matters.

One could say fed funds terminal pricing, which now sits at 5.15% should see risky assets headed lower, but this is far from true. US equity is pushing higher driven by tech and some cyclicality (the S&P500 energy sector closed +3%) and while much of the move of late has been driven by low-quality stocks, we now see big tech showing real leadership again.

Jay Powell acknowledged the disinflationary progress we heard in the FOMC statement and suggested fed funds could go higher if the labour market gets tighter – this puts further emphasis on the next NFP report on 11 March. Prior to that though, next week’s US CPI print is the marquee event risk and could greatly affect the bullish flow if we see core CPI above 5.7% (the consensus is for 5.5% YoY) – this would see US bond yields spike all across the curve and long-duration assets smacked hard, as traders go about their business thinking we could get a fed funds rate into 5.5% and above.

Of course, the opposite is true if we show further moderation in US core CPI below 5.4% and the equity bulls will add to a growing long position – volatility will fall and active managers will chase the tape. Strength, as we know, often breeds strength.

A rally in tech, driven by Microsoft, Apple, and Alphabet, is clearly helping – the space is cranking up and the AI battle ramps up, with MSFT rolling out new versions of its search engines that incorporate ChatGPT. MSFT (+4.2%) looks truly bullish on the daily, having found a platform off the 200-day MA and subsequently broken to new cycle highs. Google (+4.6%) also revealed a rival to ChatGPT, oddly named “Bard” and we watch its Search and AI-focused event in Paris in the session ahead.

Cyclicals are working well too, and after a momentary blip look to re-establish a bullish performance relative to defensive areas of the market – a resumption of a move higher in crude and Chinese markets would help.

(Daily chart of US500)


While the street beats a more pessimistic message on stocks, the fact that tech is finding its mojo means long NAS100 / short US30 remains a favoured tactical play and one I’ve been pushing in the ‘Trade Off’ series – when 10% of the Dow Jones index is weighted towards United Health you see how the index typically underperforms here – the joys of price-weighted markets. That said, for those who are less au faux with long/short trading then I look for a close above 4180 (in the US500) suggests a greater probability of testing 4300, where I have no doubt the shorts sellers will be very keen to look at new exposures.

The NAS100 needs a break of 12,800 but I am either long or neutral but shorts on any timeframe outside of intraday seem a lower probability for now.

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