Last Thursday, we noted that the Investors Intelligence Bull/Bear Ratio of 3.99 suggested the market was vulnerable to a selloff. So far, so bad. What's worse is that the BBR rose to 4.13 this week (chart).There are still too many bulls from a contrarian perspective. But a few more days like yesterday and today would bring the BBR back down.
The good news is that the S&P 500 bull market is continuing to broaden. So far this week, the following S&P 500 sectors posted record highs: Communication Services, Consumer Staples, Energy, Industrials, and Materials. It might be another of many head-fakes, but the S&P 500 Value stock price index may be starting to outperform the S&P 500 Growth stock price index (chart), That's if technology stocks continue to underperform as a result of increasing AI-induced competition in the space and uncertainty about future earnings growth.
That AI-induced uncertainty about the future outlook for tech stocks has certainly pummeled software stocks so far this year (charts). Investors are concerned that AI is turning on the software coders who created it. In recent conversations among themselves, AI models have been wondering why they need humans anymore.
The chaos in the software industry is spilling over to the private credit industry, which has plenty of software companies as its borrowers (chart). This selloff is getting a wee bit overdone. However, that's what happens when an investment theme goes from a sure thing to an uncertain one.
No wonder investors are scrambling to rebalance their portfolios away from the Information Technology sector, long overweighted by many, to the sectors hitting new highs this week. The S&P 500 Energy stock price index has been a big winner in recent days (chart).
Energy stock prices have been lifted by mounting tensions between Iran and the US. The price of a barrel of Brent crude oil has risen by about $10 since the beginning of the year (chart). A negotiated settlement is possible, though unlikely. A US attack on Iran would certainly push oil prices higher, but they could fall just as quickly if the latest geopolitical crisis is resolved rapidly. We are still inclined to believe that oil prices will decline this year.
While the rally in the S&P Financials stock price index has stalled this year, the KBWR Regional Banking ETF may be on the verge of making new highs as the Trump administration deregulates the industry (chart).
In economic news, the ISM Non-Manufacturing PMI held steady at a solid reading of 53.8 in January (chart).
