The stock market is currently experiencing a surprising and robust rally, with the Nasdaq Composite (^IXIC) achieving a 13-day winning streak, a feat that has only been matched once in the past four decades. The Philadelphia Semiconductor Index (^SOX) has also enjoyed a rare 13-day rally, having achieved this only once since 1994. Furthermore, the Technology Select Sector SPDR Fund (XLK) has seen similar results, marking this milestone just twice since its inception in 1999.
This rally is particularly striking given the broader context in which it is occurring. Major indices such as the S&P 500 (^GSPC), Nasdaq Composite, Russell 2000 (^RUT), Dow Transports (^DJT), SOX, and XLK are all reaching new record highs. This trend suggests that rather than merely bouncing back from a downturn, the market is demonstrating a persistent resilience.
Despite the positive performance, the rally has been characterized by a sense of skepticism. Trade to Close founder Olivia Voznenko pointed out that earlier in the year, prior to a significant sell-off triggered by geopolitical tensions, there was no “blue sky breakout on any news,” highlighting a bearish sentiment. She emphasized a crucial point: “It’s not the news, it’s how traders trade the news,” suggesting that market reactions are often more telling than the news itself.
Weekly performance indicators further illustrate this trend. The S&P 500 is on track for its third consecutive weekly gain exceeding 3%, a scenario that has not occurred since November 2002. Additionally, the Nasdaq Composite, SOX, and XLK are compiling a three-week surge reminiscent of the rebound experienced after the dot-com bust, a time when technology stocks were regarded as heavily damaged and unworthy of investment.
The momentum is also broadening as evidenced by the iShares Expanded Tech-Software Sector ETF (IGV), which recently recorded its best week since October 2001. This indicates that the rally is not limited to semiconductor stocks, suggesting a wider positive sentiment across different segments of the technology sector.
Despite these encouraging signs, caution is warranted. Unlike the rallies in 2001 and 2002, which were marked by recovery phases, the current environment is notable for breaking through to fresh highs. This brings to mind a less favorable comparison: March 2000, when a surge in momentum was observed near the peak of the dot-com bubble, rather than indicating the beginning of a sustained upward trend.
Another critical factor to consider is market breadth. While the S&P 500 has reached new highs, the overall participation from other stocks remains inconsistent, suggesting that the rally may not be fully endorsed across the market. This raises concerns about the concentration of gains within a narrow segment of stocks.
Nonetheless, the prevailing market sentiment appears to be shifting. Over the past 13 days, traders are increasingly viewing strength as a signal to buy rather than sell, even in the event of minor dips. The prevailing mantra from Voznenko encapsulates the current atmosphere: “It’s not the news, it’s how traders trade the news.”
