Besides the increasingly laughable daily meltup in literally a handful of tech names which are pushing the market-cap weighted S&P to all time highs every day - even as the equal-weighted market languishes and the Russell is still not too far off a bear market - the catalysts for continued upside are becoming increasingly sparse, from both a fundamental flow and technical side.
Consider this: on Friday, Goldman's head of hedge fund coverage, Tony Pasquariello, said that "sentiment measures are elevated, the trading community is quite long, the momentum factor is very stretched and valuation is tricky", and earlier today, we quoted Goldman's futures trading desk, which cautioned that the "bank's systematic models continue to point to significant long positioning in US equities from this community after an incremental $2b of simulated buying this week, with Emini length currently >90% of the model’s historical long position." Meanwhile, the recent bout of underperformance in small caps continued as the Mag7 rallied and interest rate markets priced a lower probability of rate cuts in the near term (Fed Funds futures are not pricing in a full cut until the July meeting), and as a result, "Russell 2k futures are currently trailing E-Mini S&P’s by more than 200bps on the week."
As for the pure fundamentals, there is nothing cheap here either, and certainly not - as CNBC intones erroneously every day - the 493 ex-Mag7 stocks: as Goldman's Pasquariello calculated last week, the PE ratio on the Magnificent Seven is 29x. That is in the 81st percentile of post-GFC history. The PE ratio on the S&P 493 is 18x. That is in the 88th percentile of the same lookback window: "So, while I concede that the former is superficially much higher than the latter, based on looking at each cohort relative to its own history, it’s not at all obvious to me that the 493 are all necessarily “cheap” in comparison", Pasquariello said.
