US Outperformance vs. Europe looks to continue

S&P and QQQ remain pointed higher, and despite being mildly overbought, should still be able to push fractionally higher into early next week ahead of a possible short-term top.  Treasury yields look to have followed through on the early weakness seen on Wednesday, and it’s thought that a falling US Dollar and Yield scenario generally should be supportive for risk assets into the Fall.   However,  given that more than half of S&P’s major 11 sectors have been lower over the last three months, it’s not incorrect to say that Technology domination has camouflaged the market from the skittishness being seen in many sectors.  Near-term, a run-up into next week might pave the way for a minor stalling out in Technology.  However, it’s expected that weakness in the back half of June should prove short-lived and make SPX attractive for further gains into August.

The divergences between AI-driven Technology and the rest of the market have grown much more pronounced over the last few weeks, as the broader Equal-weighted SPX has now fallen for four straight weeks, while the SPX just made new all-time highs yesterday and SPX has been higher for 7 out of the last 8 weeks. 

This doesn't have to be bearish to think that mean reversion (in the form of an SPX selloff)  has to happen right away, of course, but it is worth keeping a close eye on.  As discussed yesterday, at least five sectors have been lower over the last month as well as on a three-month basis.

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