One sector is camouflaging the market’s recent deterioration. It can only last so long, says this technical analyst.

As Keith Lerner, chief market strategist at Truist Advisory Sevices says: “The good news is the market has done a decent job of working off some of those extremes through a correction in time and through churning, as opposed to intense selling pressure.”

Indeed, the S&P 500’s resilience may seem all the more impressive given its latest rally came as 10-year Treasury yields
BX:TMUBMUSD10Y
on Thursday climbed to a five-week high above 4.15% — powered by robust economic data of late that saw traders pare their bets on the pace of Federal Reserve interest rate cuts.

Worth noting is that when the stock benchmark last looked set to take out its record just a week ago, the 10-year was yielding less than 4%. So, it’s tempting to think stocks have escaped the bond market’s tractor beam. For now, at least.

Mark Newton, head of technical strategy at Fundstrat, thinks yields and the dollar will likely pull back in the short term after their strong gains and this will provide an upward bias for stocks in the final nine trading days of January. The S&P 500 can look to breach technical resistance at 4,800.

However, a closer look at Thursday’s action shows the benchmark equity barometer’s bounce mostly powered by big tech once again, particularly the chip sector after Taiwan Semiconductor Manufacturing Company
2330,

TSM,
+1.04%
gave an upbeat revenue forecast. A jump for Apple
AAPL,
+1.55%
stock after an analyst upgrade delivered further propulsion.

This worries Newton.

He says its good that tech has done well, with exchanged traded funds like iShares Expanded Tech-Software Sector
IGV
climbing to new two-year highs and the PHLX Semiconductor Index
SOX
hitting a fresh record.

But he notes that less than 30% of S&P 500 stocks are currently above their 20-day moving average as many other sectors have floundered this week.

Indeed, financials on an equal-weighted basis have fallen nearly 5% since their Jan. 8 peak, while equal-weighted healthcare is off roughly 2.5%. The two sectors make up nearly a quarter of the S&P 500.

The table below shows Newton’s selection of sectors and their performance on Thursday.

“Technology’s ability to camouflage the recent deterioration can only last so long,” he says, adding “this divergence will need to be alleviated sooner than later to give some confidence about the longevity of this bounce.”

That’s because the trend of higher bond yields and thereby a stronger dollar will resume, he reckons, and this “should eventually be a bearish development for stocks given prior correlation tendencies.”

Tractor beam re-booted.

How to escape that pull? “It’s going to be important to see another broad-based recovery effort to have faith in this rally continuing,” says Newton. “In the very short-run, SPX has roughly a 100-point range which will be important to monitor over the next few trading days.”

Markets

U.S. stock-index futures
ES00,
+0.29%

YM00,
+0.28%

NQ00,
+0.47%
are higher as benchmark Treasury yields
BX:TMUBMUSD10Y
are little changed on the day. The dollar
DXY
is slightly weaker, while oil prices
CL.1,
+0.69%
lose early gains and gold
GC00,
-0.27%
is trading around $2,040 an ounce.

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The buzz

SLB shares
SLB,
+2.22%
are higher in premarket trading  after the oil services provider formerly known as Schlumberger topped earnings estimates and raised its quarterly dividend.

U.S. economic data due on Friday include January consumer sentiment and December existing home sales at 10 a.m. Eastern.

Fed Vice Chair for Supervision Michael Barr speaks at 1 p.m. and San Francisco Fed President Mary Daly will give comments at 4:15 p.m.

Amazon.com
AMZN,
+1.20%
will invest 2.3 trillion yen ($15 billion) in Japan by 2027 to expand its cloud infrastructure.

Macy’s
M,
-1.67%
will lay off 13% of workforce and close five stores, according to reports.

U.S. lawmakers late Thursday approved a measure funding the federal government through early March, avoiding a partial shutdown that would have begun Saturday morning.

The Biden administration will cancel $4.9 billion in student debt for 74,000 borrowers.

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RUA
corporate transcripts. From very little in early 2022, AI was clearly a hot topic by the middle of 2023. Mentions have started to slip back though. Will they continue to do so during the current earnings season?

Deutsche Bank reckons “the right way to think about it is that the froth is beginning to dissipate as businesses turn their focus onto real-world uses rather than pie-in-the-sky applications.”

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

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