We did break out of the two areas of resistance on QQQ, and the S&P 500 is trying to stage a breakout as well. The banking sector has held the S&P back, but banks, if the Fed doesn’t botch it for all of us, are oversold and a buyable sector.

To assess where we are with other areas and understand why this is a tale of two markets, let’s look at the Dow Jones Industrial Average, which is up a modest 3.30%. DVY, the ETF that serves as a good proxy for dividend and value stocks, is down a whopping -9%. IWM, the ETF of the Russell 2000, which is a broad index, is basically flat at 0.03% YTD, and MDY, an ETF of mid-caps, is also down -0.03% YTD.

AI has made a significant impact on the positive returns in tech and the FAANG stocks, and we expect this trend to continue. In the past week, there has been a notable, incrementally positive shift in investor sentiment towards equities. Previously, many pundits claimed that stocks were ignoring enormous risks such as the debt ceiling (which is about to be off the table), war, inflation, and the Fed’s resolve, and that fundamentals could never justify the “unsustainable valuation expansion.” However, it seems that bears are now swayed by strong 1Q23 earnings (+700bp beat). Companies are making money, and the chance of a recession has dropped dramatically.