Key insights
- Piper Sandler recommends reducing aggressive equity exposure due to weakening market breadth and momentum indicators. The S&P 500's performance was mixed, with the Communications sector showing strength while technology was mixed, impacted by AI safety warnings affecting semiconductors. Rising Treasury yields and oil prices pose risks to equity multiples. The firm suggests waiting for improved market participation before increasing equity investments.
Investing.com -- Piper Sandler advised investors to avoid aggressive equity exposure as intermediate-term breadth and momentum in the stock market show signs of weakening, according to a note released Wednesday.
The S&P 500 dropped 0.48% on Tuesday, while the equal-weight index added 0.04%. This difference indicates rotation within major indices rather than widespread selling. The Communications sector rose 2.2%, breaking above its 200-day moving average resistance.
The technology sector showed mixed performance. The SMH semiconductor index fell 4.75% as AI safety warnings affected semiconductor and infrastructure stocks. Software stocks rallied 5% and cybersecurity stocks gained 6%, with CrowdStrike reaching a record high.
Market breadth indicators point to weakness. Piper Sandler's 26-Week New Highs and 40-Week Technique indicators are in sell positions. The firm's MACE trend analysis shows more stocks in weekly downtrends than uptrends. Groups in defined uptrends fell from 53% to 43% last week.
The 10-year Treasury yield briefly exceeded 5.0%, while crude oil approached $105 before settling near $101.50. The firm said a sustained rise in yields toward targets at 5.2% and 5.31% would compress equity multiples. A move in oil above $106 would target $111.
The S&P 500 and Nasdaq hold support near their 50-day moving averages. Piper Sandler said AI safety warnings and an oil-driven spike in the U.S. 10-year bond yield to 5.0% suggest waiting for improved market participation before increasing equity exposure.