Quintuple play powers markets to new highs as tech surges, but valuations and RSI signal caution

OK – so the September swoon? Well, it’s not happening yet. In fact, judging by the way the tape is trading – it may not show up at all.

By the closing bell, we had a quintuple play: the Dow, S&P, Nasdaq, Russell and the Mag 7 all closing at fresh all-time highs. That’s a powerful statement or is it the melt-up before the melt-down?

The Dow added 124 pts or 0.3%, the S&P up 33 or 0.5%, the Nasdaq up 209 pts or 1%, the Russell gained 60 pts or 2.5%, the Transports up 140 pts or 0.9%, the Equal Weight S&P added 50.68 or 0.7% while the Mag 7 added 58 pts or 0.2%.

Investors, traders and algo’s are all betting that the FED will keep cutting rates and that will keep driving stocks to new high after new high – and this is when investors start to pile into the riskier corners of the market. Year-end estimates for the S&P now range from 6300 to 7400 – remember back in April – JPM had a 4500-year-end target! Oh, how things have changed.

In any event - easier policy supports the idea ‘that there will never be another down day on the street’ (do you know how many times I’ve heard that over 40 yrs!) – causing the algo’s to take stocks and the market to sky high valuations. And when stocks are at sky high valuations – you better be ‘damn’ sure earnings growth is going to be strong.

Now, S&P is trading at 25x earnings. Think about that — 25 times. Now put it in context: the long-term average P/E sits closer to 16–18x. You can argue 20x, maybe. But 25x? That’s a stretch.

The implication? Investors are paying up because they believe earnings will keep growing, rates will head lower, and mega-cap tech will continue to justify lofty multiples. All reasonable assumptions.

Here’s the risk: if growth slows, if rates rise, or if tech stops commanding a premium, the multiple compresses — and prices fall even if earnings don’t. That’s multiple contraction — a repricing of optimism. If 25x suddenly looks too rich, multiples fall and the market resets. Just to put numbers on it: at 20x current S&P earnings, we’d be at 5,240 — about 20% lower from here.

Don’t get me wrong, I’m not trying to light your hair on fire. I’m just pointing out the obvious: valuations are stretched by traditional measures, yet the algo’s keep taking them higher.

Now you want to talk about RSIs (Relative Strength Index)? Ok — the S&P is kissing it, Nasdaq, Mag 7, and Russell are already well into overbought territory. Meanwhile, the Dow, the Transports, and the Equal Weight S&P aren’t even close.

So, if they’re not close, then yes — that suggests there’s still room, and maybe even opportunity. While the Nasdaq, Mag 7, and Russell look stretched, these other indexes haven’t run as hard, which means they could play catch-up if money rotates out of the “overheated” trades and into the laggards. And that leads us into the next issue – How did the sectors do?

Of the 11 S&P sectors on a day when we had 5 new closing highs on the indexes – this is what we got. Tech rose 1.7%, Industrials rose 1%.... NOT one of the other sectors came close…. Healthcare rose 0.2%, Utilities, Financials, Communications, rose less than 0.1%. while Consumer Discretionary lost 0.5%, Consumer Staples lost 0.9%, Energy lost 0.3% and Basic Materials ended flat. Again, if you look at the indexes only, you would think it was a ‘great’ day – when in fact – it was an ok day.

Now that doesn’t’ t mean that other sectors did not do well, they did, but most were derivatives of tech….So, Cyber + 2.3%, Semis’ up 3.5%, Disruptive Tech + 3.1%, Next Generation Tech (ARKW) + 2.2%, Quantum Tech (QTUM) + 2.7% and those individual names did even better - IONQ + 2.1%, RGTI + 12%, QBTS + 6.6%, and of course INTC rocketed higher – up 23% on the back of the NVDA headline.

Bonds erased their gains after Initial Jobless Claims came in stronger than expected — 231k vs. 240k estimate and down from 265k last month. A lower number suggests the labor market may not be as weak as many thought. The TLT fell 1% and the TLH lost 0.75%, sending yields higher. The 10-yr is now yielding 4.12%, up from 3.99% on Wednesday, while the 30-yr has climbed to 4.73% from 4.62% two days ago.

Oil did nothing dramatic……it fell 40 cts but remains within the trendlines.

Gold lost $15 after hitting $3,672/oz, ending the day at $3,644. It feels like it wants to digest its recent surge higher — and after running straight up from the August $3,200/$3,400 range, a pullback wouldn’t be a shock. A move toward the short-term trendline at $3,415 would not be a surprise. I say that and this morning it is up $12 at $3,657.

US futures are treading water…. Dow futures are down 14 pts, the S&P up 1, the Nasdaq up 2 and the Russell is down 2. There are no eco data points today.

European markets are also churning a bit higher. France and Italy battling for first place up 0.7% and 0.65% respectively. There is no eco data today either – so the focus will surely be on the usual suspects. Trade & Tariffs and that new ‘Tech Prosperity Deal’ signed by the US and the UK - worth $42 billion – it is a deal focused on AI, Quantum computing and Nuclear Energy – thus the reason that anything ‘tech’ surged yesterday.

S&P closed at 6,631, up 31 points after trading as high as 6,656. And as noted above — while the indexes screamed BUY — what we saw under the sheets was a very different story.

And speaking of what’s going on under the sheets — Trump is set to chat with XiXi today about the fate of TikTok… and maybe, just maybe, help ease trade tensions between U.S.–China.

Remember – Investing is exciting and frustrating at the same time (here is where the sheet analogy would work really well!). Remember - It’s about ‘the plan’ – make sure you have one. It’s about time in the markets, discipline, and risk management.

Vellutata di verdure......(velvety veggies)

A vellutata is basically a cream sauce - a hearty delicious vegetable soup bathed in a cream sauce.... It is easy to make and delicious to eat.....Try it won't you?

For this you need: Olive oil, chopped shallots, dice peeled butternut squash, 1 med zucchini diced -, celery diced, carrots diced, potato, peeled and diced, s&p, cecci beans, chicken broth, all-purpose flour, butter, whole milk, and a baguette - cut into rounds that you have lightly buttered and toasted.....

In a large saucepan, heat oil over med high heat - Add shallots, squash, zucchini, celery, carrots, potato and s&p. Cook, stirring occasionally, for 3 minutes. Now add 2 cups of broth, bring to a simmer and cook until vegetables are tender, about 10 minutes.

Meanwhile, in a small saucepan, whisk together flour and room temp butter. (maybe like 3 tbls flour to 1/2 stick of butter), Add 1 cup milk and whisk to combine, then add 3 more cups of milk, 1 cup broth. Place on med heat and stir......bring it to a simmer then remove.

Add milk mixture to the vegetables, bring to a simmer and cook, stirring occasionally, until ingredients have blended.... taste, adjust and Boom! It is ready......Serve the soup in warm bowls and top with a toasted round.....you can have grated cheese on the side if you wish.....Enjoy.