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The US stock market’s self-defense mechanism is running full blast

5/31/24 11:39AM

One of the oldest — and truest — market axioms is that in a crisis, correlations go to one.

That means when conditions take a meaningful turn for the worse, everything in the stock market goes down together.

Right now, we’re in the midst of one of the longer streaks in history without a 2% decline for the S&P 500: 321 sessions and counting. Amid this streak, the VIX Index — a gauge of the how volatile the S&P 500 is expected to be over the next month — recently hit its lowest levels since 2019.

Meanwhile, these days tech stocks are still doing relatively well when bond yields are rising — because no matter whether the risk-free rate is 4% or 5%, that’s a rounding error compared to the return potential associated with AI, in the minds of corporate executives. That kind of spending does not appear to be that rate-sensitive — especially because the companies with some of the biggest AI capex outlays are sitting on piles of cash in the form of retained earnings.

Back in 2017, the narrative was more about high yields being a headwind for expensively-valued tech stocks, because so much of their earnings potential was in the future not the present (and would need to be discounted by this higher interest rate).

Another key way in which this story only rhymes with but doesn’t quite match the excruciatingly low-volatility world of 2017 is that these individual groups are, on their own, moving much much more. Their moves are just offsetting one another.

“The difference between now and 2017 is when bond yields were so much lower we didn’t even have these under surface swings like we do now,” said Dave Roberts, independent trader. “Indexes are fine now, but names and sectors are still moving a lot more than 2017.”

It’s like a duck: the illusion of calm on the surface of the water belies the furious paddling going on underneath.

The KBW Bank Index and the Invesco QQQ Trust Series 1 ETF (which tracks the Nasdaq 100) have had a daily gain or loss in excess of 1% on 74 occasions so far this year. Compare that to 88 instances for 2017 as a whole.

Putting this together, this suggests that if indeed we do get more of a “correlations to one” moment for the equity market, it could be quite a bit more disruptive than the down days were in 2017 — as the likes of tech and banks have already demonstrated they’re primed to move.

Matt Phillips4m

Sandisk rides Wall Street price target hikes towards new record

Sandisk leapt Friday, riding a resurgent wave of AI-related market exuberance as well as two price target hikes from Wall Street analysts.

Goldman Sachs lifted its target for the stock to $320 from $280, while keeping a “buy” rating on the stock. Mizhuho lifted its target to a street high of $410 from its previous target of $250, while maintaining an “outperform” rating on the shares.

Long considered a maker of commodity data storage products, Sandisk was spun off by Western Digital in an IPO in February.

When it dawned on the market sometime in the fall that the AI boom would mean an explosion in demand for data storage, Sandisk shares went parabolic.

Its more-than-350% run-up between the ends of August and December led to Sandisk’s inclusion in the S&P 500. And its 560% gain for the year made it the index’s top performer.

Luke Kawa3h

It looks like the stock market was expecting some tariff relief

The S&P 500 briefly dipped into negative territory and tariff-sensitive stocks swung from big gains to big losses after the Supreme Court declined to give a ruling on tariffs imposed by President Donald Trump under the IEEPA.

A basket of “Trump Tariff Losers” stocks compiled by UBS, which includes Under Armour, American Eagle, Yeti, Mattel, and Deckers Outdoor, was up as much as 1.5% in early trading before falling as much as 1.7% after news of the lack of news surfaced.

The good news is that for the market as a whole (and even this group in particular), the pain seems to have been short-lived, with both bouncing back to erase losses.

It’s a decent little snapshot or case study to show that, yes, as prediction markets imply, the stock market is pricing in tariff relief.

J. Edward Moreno3h

Amazon pharmacy to begin offering home delivery for Novo Nordisk’s Wegovy pill

Amazon Pharmacy announced Friday that it will offer Novo Nordisk’s recently approved weight-loss pill Wegovy, the newest frontier in the drugmaker’s push toward direct-to-consumer options.

Amazon said it will offer delivery for the pill through insurance and cash-pay options. Novo’s cash-pay price for the pill is $149 a month — less than half of what its injectables cost through the same channel.

Novo has partnered with big-box stores like Costco and Walmart as well as several big telehealth companies, including Ro, Weight Watchers, and LifeMD, to distribute the pill. This comes as the Danish pharma giant is trying to regain ground after Eli Lilly surpassed it in market share, in large part because of its early emphasis on direct-to-consumer channels.

The Food and Drug Administration approved Novo’s weight-loss pill in December, making it the first approved weight-loss pill to go to market. It has the same active ingredient, semaglutide, as its injectable products, Ozempic and Wegovy. Lilly’s oral version, orforglipron, is expected to come to market later this year.

Matt Phillips4h

Intel gains after a favorable post from Trump

Intel continued its strong 2026 start by rising early Friday, following a favorable online post from President Trump, whose administration partially nationalized the ailing American chip giant in August.

In a Truth Social post Thursday afternoon, he praised CEO Lip-Bu Tan, boasted about the amount of money the government’s 10% investment in the company has made, and said, “Our Country is determined to bring leading edge Chip Manufacturing back to America, and that is exactly what is happening!!!”

Even after adjusting for the Trumpian tendency toward hyperbole, that last comment will be intriguing to Intel watchers. The company’s search to make deals with external customers willing to use its next-generation contract chip manufacturing business, crucial to the future of Intel’s ailing foundry business, will likely be a key driver of the stock price this year.

It’s not nuts to think that having the US government as a shareholder and the president as an active cheerleader — especially one who’s not shy about putting pressure on private sector companies to get what he wants — could be helpful in corralling reticent foundry customers.

Intel is up roughly 16% year to date and has more than doubled over the last year.

Intel stock rises after Trump touts 'very successful' CEO, applauds government's investment

Intel is up roughly 16% year to date and has more than doubled over the last year.

Max Knoblauch4h

Southwest climbs to highest since 2022 on a double upgrade and 66% price target hike from JPMorgan

A rare double upgrade from JPMorgan has Southwest Airlines taking off on Friday morning, with shares up 4% shortly after the market opened.

The firm upgraded Southwest from “underweight” to “overweight” and hiked its price target from $36 to $60. According to analyst Jamie Baker, the potential for earnings-per-share guidance of $5 is “attractively probable” in 2026 — a figure that would “handily dwarf” the Wall Street consensus.

“Southwest possesses the industry’s deepest track record of profitability, an investment grade balance sheet, and a loyal customer base,” Baker wrote, adding that recent hiccups and slow adaptation is stabilizing, and revenue-driving initiatives like bag fees are “progressing as planned.”

Bag fees helped drive the airline to record third-quarter revenue in October. Later this month, the carrier will roll out assigned seating, which will open up new seating tier categories (and more premium ticket options).