Fickle investors left stocks in both large-cap and small-cap indexes largely unchanged for the trading session. The price action seems to indicate a conflicted group of indecisive investors who are unable to decide whether they want to move to safer ground or if they are afraid of missing out on a high-performance fourth quarter. Bonds also closed the session nearly unchanged from Friday's close, signifying that investors are similarly conflicted about that asset class as well.
Neither asset class has responded to the news of the Fed's open market operations via its so-called repo window, likely demonstrating the fact that major players in the market see these events as anomalous artifacts of corporate tax payments and quarter-end timing. As a result, analysts believe that these events are unlikely to have any impact on the market's overall performance. But that could change almost instantly if the investment community decided that the Fed's behavior represented serious risk. The only logical response to any problems that would arise would eventually be a lowering of interest rates, or in other words, an impact on higher bond prices and lower bond yields.
The overall performance for bonds with long maturities has been quite impressive in 2019 so far, rivaling the return on stocks just a few short weeks ago. The chart below demonstrates a simple way for anyone to use the price of exchange-traded funds to track this performance.
Is the Tech Sector Ready for a Resurgence?
Investors have had a lot to worry about over the past month, and the tighter daily trading ranges in the indexes suggest that many investors are feeling conflicted and may be suffering analysis paralysis. During such times, it is useful to keep an eye on comparative sector performance in an attempt to see which sectors are showing the strongest price action. This implies that investors are more optimistic about the future of the companies in that sector.
Surprisingly, the tech sector has shown to be the leading performer over the past 90 days. If the trend were to continue for the next 90 days, it would imply that the markets had gotten over their fears and wanted to put their money to work. Many stocks in the technology sector have reached a point of technical price resistance, so it will be up to investors to pick and choose those most likely to break out.
Microsoft Up Against Technical Resistance
Microsoft Corporation (MSFT) shares have shown excellent performance so far this year. Rising along with the rest of the market and on the strength of the company's cloud-based subscription strategy for many of its products, Microsoft seems to be a powerhouse in the minds of investors.
However, as the stock price rose to $145 and the price-to-earnings ratio (P/E ratio) rose above 30, investors appear to be wondering whether the stock is overpriced. This is clearly manifest on the chart in what technicians call resistance, and it prompts the question of whether investors will show enough demand for the stock to drive the price above $145. If it does, it will likely be a bellwether indicator of the fate of many other stocks contained in the large-cap indexes.
The Bottom Line
U.S. stock and bond indexes remained tightly range bound on low volume today. Despite the indecision among investors, the tech sector actually looks primed to outperform over the next three months. Microsoft would have to close above its resistance at $145, but if it did, that would signal that investors simply have not slackened their demand for higher returns.
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