In the wake of last weeks stress test jubilation (well, relief, really), the markets are not greeting the new week with much cheer. The Dow Jones Industrial Average and the S&P 500 are both trading lower and theres a certain heaviness to the tape.
Except in one place: Technology.
Recall that last week technology shares seemed to retreat in the face of broader market strength. Most market analysts believe that technology needs to play a leading role if the current rally will have legs. As the economy improves, companies will look first to technology, rather than people, to meet productivity needs.
The Big Four Intel, Microsoft, Cisco and Oracle are all trading higher in an otherwise down market. That bodes well, even as the major averages take a break.
Given techs strength, more questions are being asked of the run-up since the early March lows. Is this recent upward move for real, or is it a suckers rally? Ed Yardeni, head of Yardeni Research, says It may be that all the monetary and fiscal easing is working to revive global economic activityAll that liquidity has driven down the rate of return on short-term liquid assets and government bonds to levels that are reviving risk taking.
He argues that all that money sloshing around isnt likely headed back to the moribund real estate market. That means its headed into stocks and commodities. He thinks commodities are likely to benefit more than stocks. That makes sense.
If this rally is indeed for real, despite todays breather, then the next debating point is likely to center around a return of inflation. In such a scenario, commodities are likely to drive the discussion.
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