"The Magnificent Seven" falters, but SPDR S&P 500 still hits a new high. Is there a quiet rotation happening in the US stock market?

Is the US stock market quietly shifting?

In the past week, the US stock market has experienced a series of remarkable changes. Despite the pressure of inflation data exceeding expectations, the market's optimism has still driven the stock market to rise, especially the S&P 500 index hitting its 11th record high this year.

Analysts believe that even against the backdrop of the "FAANG" stocks losing their luster, the market remains optimistic about the economic recovery, and the momentum of the US stock market remains strong. Investors are shifting their funds from technology stocks to non-technology stocks, and the US stock market is undergoing a quiet rotation.

Economic Data and Market Reaction

A recent batch of economic data has failed to significantly impact the market.

The decline in US retail sales in January, as well as the downward revision of sales data from previous months, prompted a drop in US Treasury yields, reflecting investors' expectations of further interest rate cuts by the Federal Reserve. However, this trend quickly reversed, and the 10-year Treasury yield eventually stabilized at 4.239%, slightly lower than Wednesday's closing level but higher than the level before the release of the retail sales report.

Meanwhile, other economic indicators have presented mixed signals. The weekly jobless claims, which were lower than market expectations, showed the resilience of the labor market. The consecutive third-month rise in the homebuilder confidence index indicated optimism in the real estate market, while the underwhelming industrial production figures indicated economic weakness.

Investor Confidence Rebounds, Market Shifts to Non-Technology Stocks

The CPI report released on Tuesday showed that consumer prices rose more than expected. Analysts believe that the unexpected increase in CPI data may be due to one-time factors such as price resets by certain businesses at the beginning of the year. The price increase may not fully reflect a sustained inflation trend but rather adjustments at specific points in time.

This explanation helped the stock market regain momentum, especially stocks outside of the large technology stocks that have been driving the index higher for most of the past year. On Thursday, these non-technology stocks regained favor with investors, indicating that market confidence in the economy is recovering. The three major US stock indexes did not collectively open higher, and their intraday performance varied. Stocks in most industries and companies, excluding the weakness of the tech giants, rose, preventing the indexes from making significant gains.

Tech giants like Nvidia continue to decline slightly overall The three major US stock indexes continue to rebound, with the Dow Jones Industrial Average almost erasing all losses since the CPI announcement on Tuesday, while small-cap indexes far exceed the level before the CPI announcement.

In terms of technology stocks, Cisco Systems' stock price fell 2.4% after giving a cautious sales outlook on Thursday. Dominant technology stocks in the market also generally declined, with Alphabet falling 2.2%, Nvidia sliding 1.7%, and Microsoft dropping 0.7%. In addition, Meta Platforms, the parent company of Facebook, bucked the trend and rose by 2.3%.

As for the major indices, the Dow Jones Industrial Average rose by approximately 349 points (about 0.9%), reaching its second-highest closing price in history. The S&P 500 index rose by 0.6%, barely setting its 11th record of the year, while the tech-heavy Nasdaq Composite Index rose by 0.3%. The Russell 2000 index, which represents small and mid-sized companies, surged by 2.5%.

The energy sector performed well, with energy companies being among the best-performing stocks of the day, thanks to the rise in oil prices. Chevron and Exxon Mobil rose by 3.4% and 2.9% respectively. Diamondback Energy reached its highest closing level since October last year. These are large companies in the energy sector, and their stock prices outperformed the market average.

Analysts believe that the latest developments in the US stock market indicate that despite inflation pressures and fluctuations in economic data, there are underlying changes in the market structure. Investors are reallocating funds, driving the rise of non-tech stocks, which may indicate a broader market rotation. This rotation reflects the market's confidence in sustained economic recovery and the desire to seek opportunities amidst uncertainty.

Keith Lerner, Chief Investment Officer at Truist Advisory Services, a financial consulting and investment management company, said, "I am actually encouraged by the rotation we are seeing in US stocks, as it suggests some confidence in the economy."

As the market continues to adapt to changes in economic data and policy expectations, investors and analysts will closely monitor whether this rotation will continue and how it will affect the future trend of the market.