Tech Rally at the Edge: Is the Market Running on Borrowed Time?

In this IBKR Midweek Minute, Scott Bauer joins Jeff Praissman to discuss whether the tech-driven market rally is running on borrowed time as stocks push to record highs. They break down inflation, rising yields and Fed policy uncertainty to assess whether the current momentum can last.

Summary – IBKR Podcasts Ep. 386

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman

Hi, everyone. This is Jeff Praissman with Interactive Brokers Podcast, and it’s my pleasure to welcome back to the podcast studio Scott Bauer from Prosper Trading Academy. Hey, Scott. How are you? 

Scott Bauer

Jeff, all is well here in Chicago. How about you? 

Jeff Praissman

It’s all good here in Connecticut as well. And I love these Wednesday mornings when you come over to the studio and we talk a little market activity. And for our listeners, even before we get started, to get more from Scott, you can just go to prospertrading.com or find many great articles and podcasts on our website, ibkr.com, and click on Education. So, Scott, last week stocks hit a record high. You know, they’re led by tech and AI names. Yeah, how sustainable is this rally given, you know, rising inflation and higher yields? 

Scott Bauer

I mean, it’s been pretty incredible and, you know, the buy into these tech stocks has been really aggressive. However, you know, it looks like the broader macro backdrop might be, you know, a bit more restrictive. We’re looking at the Fed raising rates potentially later in the year and, you know, that divergence is really kind of honing in that maybe the equity rally is becoming increasingly dependent on just too few stocks and not as broad as we saw it maybe even just a month ago. 

Jeff Praissman

And well, one thing I did find interesting that, you know, retail sales came in pretty solid, but it’s kinda conflicting, right? At least mentally because, like, you know, there’s been some rising delinquencies, and obviously inflation pressures remain. I mean, everyone knows how expensive everything is right now. What do you think this says about the real health of the consumer? 

Scott Bauer

I mean, the consumer is so, so resilient, and so far it seems like all the higher, you know, gas pump prices that we’re all paying maybe it hasn’t hit some of the data just yet, but we are seeing this K economy. We are seeing it diverge even more so. And if you look at some of the retail sales data, it’s some of those more expensive items like furniture and home furnishing store sales, which were down, you know, fairly considerably. Cars were down. So even though overall spending is there, it’s kind of at that, you know, that top line there. Consumers are really focused on more of their recurring expenses, things that they need to spend on right now. So even though the resiliency is there, I think it’s starting to wane a little bit. 

Jeff Praissman

Got it. And, you know, Kevin Warsh was confirmed as the Fed chair and, you know, kind of, you know, officially signaling like sort of more of a restrictive stance. Like, how should investors think about rate cuts or even, you know, hikes from here? 

Scott Bauer

Yeah. And you know, we have to follow the bond market. And even Warsh, as much as he would like to lower rates, contends that’s really not possible right now. So we’ll get the minutes later today, and it’s really gonna say how hawkish the entire FOMC maybe has become. So I think, you know, he’s in a really difficult spot because his goal mandate in general is to get rates lowered, and that’s not gonna happen anytime soon. 

Jeff Praissman

And as always, we have so much data coming out in a couple of weeks. What should markets watch for with the upcoming FOMC minutes and Fed speeches? And you think there’s any sign of policy divergence or concerns about inflation? 

Scott Bauer

Well, I think the concerns are still there and maybe they have even gotten a bit deeper. And I think we’ll hear that in the minutes, that it’s not maybe just, you know, sticky anymore, but it is really an issue. So in these minutes, as we just discussed, I would expect the focus really to be on how far, you know, to the hawkish side maybe the entire committee has been. And then we’ll get, you know, as you said, a bunch of Fed speakers afterwards. But to me the focus really is going to be, are they looking to hike rates this year, early next year? When is that going to be? 

Jeff Praissman

Mm-hmm. And finally, with PMI and jobless claims due, could these data points shift expectations around growth in the Fed’s next move? 

Scott Bauer

There’s no question about that because especially PMI, which is the Flash Purchasing Managers Index, that data covers not just here in the U.S., but Eurozone, UK, Japan, Australia. We get that from S&P Global. So we’re gonna get with those numbers a really timely read on the overall global economy. And even though maybe consumers here aren’t feeling it or aren’t feeling the higher prices at the gas pump just yet, is that really hitting in other parts of the world? That and how are higher rates really hitting people? So I think this is a good one because this is not just isolating here in the U.S., it’s really global. 

Jeff Praissman

Scott, as always, this has been great. For our listeners, this is Scott Bauer from Prosper Trading Academy. Comes in every other Wednesday and gives us a rundown of the past week of the market and the week ahead. Thanks, Scott. Looking forward to next time we see you. 

Scott Bauer

Thanks a lot, Jeff.