Equities: Tech-led rally faces growing caution – Danske Bank

Danske Research Team highlights that global equities have gained about 5% over five sessions, with cyclicals and growth outperforming defensives and value, pointing to a tech-driven move. The VIX has only modestly declined, and late-session underperformance in US tech and Nasdaq plus cautious sentiment in Asia suggest investors are becoming more wary of the tech trade.

Five-day rally led by tech

"Global equities extended gains for a fifth consecutive session, taking the five-day advance to roughly 5%. That is noteworthy in itself."

"Moves of this magnitude typically follow periods of elevated volatility and sharp drawdowns, yet this rally has been accompanied by only a modest decline in implied vol. The VIX has eased only from just above 17 to just below 16 over the past five sessions."

"Performance has been dominated by cyclicals outperforming defensives and growth continuing to outperform value, underlining that this has primarily been a tech driven rally rather than a macro driven one. Yesterday followed the same pattern, although to a lesser extent, with enthusiasm around the tech theme fading through the US session. Consequently, US tech and the Nasdaq underperformed broader markets into the close."

"This morning, sentiment around the tech trade remains somewhat more cautious. Asia is largely catching up with the late Wall Street moves, producing the now familiar divergence with highly tech sensitive South Korea materially weaker while less tech exposed markets trade firmer. European and US futures are higher this morning, although Nasdaq futures are again marginally lagging."