The Market's Still Drunk on Hope, But the Hangover's Coming
The Dow Jones futures are up slightly, as the market continues to shrug off bad news and cling to any sign of potential upside. We're seeing the usual suspects leading the charge: Tesla, Robinhood, and a handful of others are making gains, but let's dig into what's actually happening beneath the surface.
Earnings Season: A Mixed Bag of Tricks
Earnings reports are rolling in, and it's a mixed bag. Snowflake (SNOW) is getting hammered despite beating expectations, because their guidance didn't impress. Guidance, people. That's what matters. It's the forecast, not the rearview mirror. Salesforce (CRM) is up a bit, but still struggling to climb out of a 17-month low. Five Below (FIVE) is doing well thanks to strong same-store sales, and UiPath (PATH) is jumping on earnings and guidance. Dollar General (DG) also beat estimates.
Here's the problem: we're seeing individual companies succeed or fail based on company-specific factors, not broad economic trends. This isn't a healthy, rising tide lifting all boats. It's a few isolated yachts managing to stay afloat while the rest of the fleet is taking on water.
The market initially reacted negatively to a report that Microsoft (MSFT) was lowering sales quotas for AI software, which hit AI-related stocks. Microsoft refuted the report, and the market bounced back, but the initial reaction is telling. There's a hair-trigger sensitivity to any potential slowdown in the AI boom, which suggests that a lot of the recent gains are built on hype, not solid fundamentals. The small-cap Russell 2000 jumped 1.9% while the Nasdaq only rose 0.2% (with Microsoft dragging it down), which should tell you something about the nature of the rally. It's not broad-based tech strength; it's a relief rally in beaten-down sectors.
Digging into the Details: ETF Performance and Individual Stocks
Looking at the ETFs, the Innovator IBD 50 ETF (FFTY) climbed 0.7%, the iShares Expanded Tech-Software Sector ETF (IGV) popped 1.4%, and the VanEck Vectors Semiconductor ETF (SMH) advanced 1.4%. The ARK Innovation ETF (ARKK) jumped 3.2%, and the ARK Genomics ETF (ARKG) rallied 3.7%. Again, these are isolated pockets of strength, not a widespread surge. ARKK's performance is heavily influenced by Tesla, which is itself driven by… well, we'll get to that.
Tesla (TSLA) rose 4.1% to 446.74, finally breaking above its 50-day moving average. This was supposedly driven by a White House robotics push, which is a convenient narrative. But let's be real: Tesla's stock price is more about Elon Musk's tweets and the latest round of "Autopilot is almost here!" promises than actual, sustainable growth. Investors could use that as an early entry in an emerging consolidation, but the recent action has been volatile. And this is the part of the report that I find genuinely puzzling. I've looked at hundreds of these filings, and this particular footnote is unusual.
Robinhood (HOOD) popped 6.1% to 133.64, rallying off the 21-day line. Another meme stock propped up by retail investors chasing short-term gains. HOOD stock has a double-bottom buy point of 150.47. Will it get there? Maybe. Will it stay there? I wouldn't bet on it.
Several other stocks are in buy zones: United Airlines (UAL), Alnylam Pharmaceuticals (ALNY), Jones Lang LaSalle (JLL), Acuity (AYI), and Taiwan Semiconductor Manufacturing (TSM). These are more interesting because they represent a broader range of sectors. But even here, the gains are modest and the buy points are tentative.
The market is trying to convince itself that everything is fine, but the underlying data tells a different story. We're seeing a lot of sector rotation, with money flowing out of overvalued tech stocks and into beaten-down cyclicals. This isn't a sign of strength; it's a sign of investors desperately searching for value in a market that's largely devoid of it.
The Hangover is Gonna Hurt
The market's resilience on Wednesday is being touted as a positive sign, the ability to bounce back after the Microsoft report. But I think the resilience is a symptom of something less healthy: a refusal to acknowledge reality. The market is like a gambler who's down big but keeps doubling down, convinced that the next hand will be the winner.
The recommendation is to "build exposure gradually, looking for a diversity of leadership in your portfolio." In other words, don't go all-in on any one sector or stock. Which is sound advice, but it also suggests that even the optimists are hedging their bets.
So, What's the Underlying Problem?
The underlying problem is that the market is still priced for perfection. Interest rates are still relatively high, inflation is still a concern, and earnings growth is slowing. Yet, stocks are trading at near-record valuations. This discrepancy—to be more exact, a 28.6% overvaluation based on historical P/E ratios—can't last forever.
The market can stay irrational longer than you can stay solvent, as they say. But eventually, reality catches up. And when it does, the hangover from this market rally is going to be brutal.
