Technology bears spent Tuesday running for their lives following more evidence that corporate spending for technology is alive and well, states Jon Markman, editor of Strategic Advantage.
The Nasdaq 100 rallied to 15,5296, a gain of 0.9%. The advance was the eighth consecutive, the longest streak of 2023. The benchmark is now testing the October high at 15,333 and bears are understandably frantic. They spent the past three months arguing that investors misunderstand the magnitude of the coming economic turmoil.
Bears pointed to rising macroeconomic concerns such as rising global interest rates and the strong likelihood that corporations would be forced to curtail spending to stem shrinking profitability. Unfortunately for bears, there was mounting evidence these observations simply did not apply to technology spending.
Marc Benioff, chief executive at Salesforce.com (CRM) said a month ago that capital expenditure at the biggest companies remained robust. Salesforce products are ubiquitous across the Fortune 500. Benioff would know.
Executives at Datadog (DDOG), an enterprise software provider, reiterated this view Tuesday when they reported sales well over forecasts and raised the outlook for the coming quarter. Datadog shares scooted 28.5% higher.
Strength across the enterprise software space was substantial. MongoDB (MDB) and Snowflake (SNOW) rallied 11% and 10.7% respectively. Microsoft (MSFT), ServiceNow (NOW), and Adobe Systems (ADBE) traded to record highs.
All the bears’ narratives are imploding, and they are fleeing positions. The NDX is now testing the first resistance level at 15,333. There is important support at 14,960, then 14,813, the 50-day and 20-day moving averages, respectively. Be ready on Wednesday to buy a decline to the latter level. Don’t miss out on this end-of-year rally.
Why the Turn Is So Sudden
We have talked a lot in the past two weeks about why we expected a swerve and acceleration higher. It’s great to get out in front of a movie like this.
Now I would like to share with you comments by the elite analysts at DataTrek Research in New York, which add more color. This excerpt is just a tiny sliver of their analysis.
"Institutional investors went into November extremely risk averse. Every month, State Street releases an update to its Risk Appetite index, which is based on how its custody clients have been positioning their portfolios. If they are buying riskier stocks and bonds, the index reflects higher risk tolerance. If portfolio managers have been de-risking, then the index shows that as well."
As the following five-year chart shows, State Street’s clients ended October with some of the most risk-averse portfolio positioning since the 2020 Pandemic Crisis, 2022’s rate shock, or May 2023’s worries over a bank crisis-induced US recession.
Takeaway: This index has a great track record of calling near-term equity market turns when it gets this bearish. At the very least, it explains why the S&P 500 is up 4.4% this month. If interest rates continue to stabilize and/or decline, we suspect fund managers will start adding risk again as we get closer to year-end.
