Welcome to Morning Brief on Yahoo Finance. I'm Julie Hyman and we are coming off of a fairly extraordinary week in markets that saw steep selling in software that spread to the broader tech universe. We saw a sell-off in shares of Amazon even when the rest of the market was bouncing back on Friday on that company's $200 billion spending plans. And so today we come in after that sharp rebound on Friday that sent the Dow Jones Industrials above 50,000, sent it to a new record. We now see things coming back down a little bit this morning. We got a lot going on this week. Of course, we got a rescheduled jobs report coming out on Wednesday and then consumer inflation numbers coming out on Friday. So, ahead of all of that and after that wild week that we have, futures are indicating a little bit of a lower open. So, Dow futures off by more than 70 points here this morning. S&P futures indicating a decline of about a fifth of 1%, NASDAQ 100 futures down by nearly a third of 1%. So, that's the setup at the moment here. I want to get more on what investors are thinking in terms of the technical setup as well. Adam Turnquist is with us, LPL Financial Chief Technical Strategist. Adam, I'm so glad you're here because after the week that we had and those wild swings here, I think it's really important to kind of take a step back, take a deep breath, and figure out what the charts are telling us. So, I know for the S&P 500, we sort of bounced off of some technical levels. Talk us through that and what that tells us about what happens now.
Hey, good morning. And a little bit of a hangover here after the 50,000 point milestone party on Friday for the Dow, but it was an important step in last week's recovery rally on Friday. When you look at the technicals in the setup going into the weekend, we really had a nice bounce off the 100-day moving average on the S&P 500. We got back above 6,900. That marks some prior highs, really the upper end of this range that the S&P has been in for the last few months. So we're on the upper end of that range. The big question now for this week, can we get through the 7,000 point milestone? That's been a problem for the S&P 500. We've briefly flirted with that level and then backed off. I think if tech can make a little bit of a comeback, I would expect to see the S&P clear that level and potentially hold it and finally get out of those consolidation range.
And I'm curious, Adam, how you're thinking about those big economic reports I mentioned because we, yes, we have earnings this week, but we're sort of past the bulk of those tech earnings, right? And we've got a jobs report that's coming on Wednesday. It normally comes on a Friday. CPI is on Friday, right? It normally comes earlier in the week. So, does that sort of mix things up in terms of what we could see in terms of market reactions after last week's employment data?
I think this Wednesday's jobs report is really going to be interesting. Probably some more volatility around it just given the uptick in weekly claims last week, the JOLTS data and the rest. Not great. So, labor market's still on trial and I think that's going to create a little bit more volatility or the prospect for volatility. We continue to think the labor market's slowing down but not stopping and our base case is no recession. I think it does allow the Fed to continue cutting rates maybe one or two more times this year is what we have penciled in for our forecast. That's supportive of course of US equity markets. We've run the analysis. When the Fed is cutting, when the S&P is near record highs, you tend to get some added tailwinds for the next 12 months. And that's what we expect for the broader market, albeit maybe a little bit choppier path than what we've seen over the last couple years.
And you mentioned that the 7,000 level is contingent on those tech stocks coming back, right? Because even though we've had this big rotation trade, the tech stocks still have a huge weighting. So, as you look at this week, do you think that 7,000 is achievable?
I think it's definitely achievable. The S&P's really been towing an anchor here with the tech space. It has not made a new high since October. And the big underpinning behind that has been weakness in software. There's been this AI disruption trade that's really kind of taken out the AI bubble talk, and software names have absolutely been destroyed over the last several weeks with extremely oversold conditions. Some that we've never seen in terms of the momentum indicators that we watch. So, it's not surprising we're getting a bounce here when you look at the broader software industry. It's right at a major support level. It's extremely oversold. That's what we witnessed last Friday. The big question though, is that sustainable and is that enough to hold or really push the tech sector out of its consolidation range? I think maybe we'll get some information on that this week, but certainly maybe a high-risk, high-reward setup here for the broader software space.
Adam, I'm curious about something. I've been talking with a lot of guests about single stock volatility and how it has gone up by so much. I mean, even this morning, you look at some of the single stock movers on the back of earnings and you see extra, well, at one time it would have been extraordinary moves. Now, it's kind of the norm to see these like 20% swings in a single stock. What does that do to technical analysis? Does it change things at all for you? Especially when you're looking at the index level, do you have to tweak things when you see those kinds of moves?
I think it's some job security for technicians because when there's volatility, that's when your phone is ringing the most and that's when investors want answers. Where's support? Where's resistance? Or what are the levels I need to be watching? Even if they don't subscribe to the field of technical analysis. So I would say in my experience doing it, any volatility tends to put more weight on technicals because price is really deviating from fundamentals and that's where you have more emotion in the market and that's where technicals I think work really well. So I think it certainly helps in those scenarios.
All right. So I got another one for you then where we've seen extraordinary volatility and that's in gold and silver, right? I'm sure you're getting calls on that too. So, what are the charts telling you about where they're headed next?
Look, when you step back on the gold and silver trade, especially if we just focus on gold, the long-term trend is very much up and to the right. We had these parabolic moves develop last fall. Gold got extremely overbought. I could go on a long list of different technical indicators that were basically at historic levels in terms of that degree of momentum. And when you have that high rate of change, you should expect volatility. So I would argue even though maybe it was extreme, this really comes with the territory in these big drawdowns. The good news, gold did hold up on some of the retracement levels that we're watching. So I do think it's going to take time. I'm always leery of buying the first bounce when these parabolic moves end. When you look at the last four cycles of gold consolidating, it's really been anywhere from 40 to 90 days until it breaks out. It's been overbought, consolidates, rallies, overbought, and then those periods of consolidation has taken several weeks in terms of price regaining its footing and moving higher. But the fundamentals for gold certainly are still there. The prospect for a weaker dollar. Look at the geopolitical environment. We think that will remain elevated. There's still inflation risk and the list kind of goes on and on when you look at central bank buying and the debasement trade. So we still are positive on the precious metal space and the same could really be said about silver. A little bit more of an industrial metal than a precious metal and we think that plays well into this AI spending and infrastructure spending.
Of course the debasement trade should also be helping something else that it's not and that's Bitcoin. At least in theory, right? If you're a Bitcoin bull, you would think it would be benefiting and it hasn't been. So what story do the charts tell on that one?
It's a broken story unfortunately for Bitcoin. It violated its longer-term uptrend. It took out the 200-day and that's really where it started to unravel after that trend was broke. It's bounced a little bit last week or in a big way actually, but I guess normal for Bitcoin. So maybe a relief rally here. Tough to call it sustainable. I think you're going to need to see some further technical progress and really a confirmation in momentum to change before getting too excited about making a call for a bottom. There's downside risk I think maybe to 50,000 when you look at some of the support levels and maybe that's where you start to find more firmer footing for the Bitcoin trade.
Adam, great to see you. Thanks so much.
All right, thanks for having me.
Coming up on Morning Brief, we'll bring you today's top trending tickers and we'll hear from Mohamed El-Erian about why you maybe shouldn't buy into the rotation trade. That's next.
Now, time for some of today's trending tickers. We are watching Eli Lilly, Novo Nordisk, and Kindrel. First up, Eli Lilly. The pharmaceutical giant buying biotech company Orna Therapeutics for $2.4 billion in cash. That Lilly-Orna deal will include upfront payments as well as subsequent payouts based on meeting certain milestones. Orna is developing treatments for certain autoimmune diseases, including rheumatoid arthritis and multiple sclerosis. The move boosts Lilly's footprint outside of the obesity market, where of course it currently sells its weight loss shot, Zepbound. Next up, Novo Nordisk shares are gaining after Hims & Hers pulled a copycat version of the new Wegovy weight loss pill. That decision by HIMS follows legal moves by Novo and government threats to crack down on knockoffs. Novo Nordisk said it's suing Hims & Hers for making copycats of its obesity medicines. Novo says Hims is breaching the US patent on its semaglutide. The suit marks a more aggressive approach for Novo under its new CEO. Until now, the drug maker's legal strategy focused on the way that companies like Hims market their products. And a reminder, just last year, the two companies had a partnership that was scrapped due to concerns on deceptive marketing. Also, we're coming off of a big Super Bowl ad for Novo Nordisk, by the way. And finally, Kindrel, shares of the information technology services infrastructure provider are plunging. Remember, I was just talking with Adam Turnquist a few moments ago about these what were once unusual huge swings in individual stocks after earnings. This is one of the ones I was thinking of, a 53% decline in those Kindrel shares after the company's third quarter results missed expectations. It also lowered its full-year forecast for both adjusted EBITDA margins and adjusted pre-tax profit. At the same time, Kindrel's CFO is departing the company amid an SEC review of its accounting practices. The decline probably has something to do with that as well. Kindrel said that while it doesn't expect the review to result in a restatement or other impact to those financial statements, it will delay filing its quarterly report with the SEC, it expects to report material weaknesses in its internal control over financial reporting for fiscal 2025 and the first three quarters of fiscal 2026.
Well, tech stocks are looking to rebound after last week's rout fueled by AI concerns. My next guest says the rotation is not the answer to tech uncertainty. Joining me now, Mohamed El-Erian, Allianz's chief economic adviser and a professor at the Wharton School. Mohamed, it's great to see you. Those tech stocks may be attempting a comeback, but markets overall are not coming back again today after Friday's rebound. I was looking at the year-to-date numbers. Tech stocks the worst performers in the S&P, energy stocks the best performers, and we have seen that rotation here, but as you wrote in a piece this weekend for Yahoo Finance, maybe people shouldn't be jumping on that rotation bandwagon. Why not?
So, good morning, Julie. Thank you for having me. Look, we're coming from a very strong couple of years for tech and rightly so. It was the AI theme. There's a sense that this was a little bit overdone. It was too generalized. So, people are being recommended to rotate, go to anti-AI stocks. That's what you'll hear over and over again. That's why the Dow is having such a good year. That's why non-US is having such a good year. I'm just cautious because in order for the rotation trade to work, it needs to be supported by a fundamental theme and not just by a technical theme. And it's hard to find one. I'd much rather investors exploit structural opportunities. I'd much rather investors exploit tactical opportunities. For example, the AI selloff has been pretty indiscriminate, but there will be a handful of AI winners. So look more into the structural and opportunistic space and be careful of this automatic reaction to simply rotate into something that's not last year.
I think that investors are really struggling with where those AI winners and losers are going to be. That's part of maybe part of the reason why we're seeing this indiscriminate selling. And listen, I know that you're not a tech investor per se, Mohamed, but just sort of in terms of criteria, in terms of process, how do people try and figure that out?
So, there are certain names I'm highly confident about. Why? Because they have exactly as you say, certain characteristics. Think of Google. Google both has a vertical stack and horizontal stack. It can self-finance a lot of its investment. It cannot be held hostage by the market. It can monetize its investment easier. So there are certain names that you can make a very strong fundamental argument for. There are other names that are much more speculative. OpenAI is a much more speculative AI play than Google is. So you can look at these characteristics and ask the question, how resilient is my investment? Is there balance sheet strength? Is there human resilience? And how quickly can this company monetize? What are enormous investment? Last week alone, two companies announced 400 billion of capex this year. These are very large numbers, Julie.
They are very large numbers. And you know, a lot of folks come on the show and they say, maybe you don't need to make a bet on who's going to win and lose necessarily, but you can invest in what everybody has been calling the picks and shovels, right? The infrastructure. And some of that is in those places people have been rotating to, right? Industrials for example, that service the grid for example, various plays on that. Do you think that's a way to look as well at this whole situation?
It is a way to look, but if you do so, just make sure you know what the adoption policy is, what the diffusion policy is. There's two parts of AI. The one we mostly focus on is the frontier models, those working on AI. But monetization of these things you talked about is about something else completely. It's about those working with AI. How will adoption happen? Will it be even? Will it be fast? How inclusive will it be? So if you are in this space, make sure that you know what diffusion phenomenon you are betting on because we may not get the sort of diffusion that a lot of people are assuming when they go to all these opportunities that you're talking about.
