With less than a week left, the Nasdaq 100 is on track for the best first half EVER.

But there may be some clouds on the horizon. Let’s dig in and take a look…

A big topic in the past couple of months has been that over 80% of the U.S. stock market rally so far is driven by just seven stocks (FAAMG + Tesla + Nvidia).

Nvidia has been the runaway winner up +189% while Meta is a close second at +140%.

Now you might think that the big gains in mega-cap tech stocks are being driven by earnings gains. Right?

Well, guess again.

We’ve actually seen the complete opposite of that in some cases.

Except for $NVDA, tech mega-cap companies have either experienced stagnant growth in expected or a substantial decline.

Given the historically high multiples these stocks trade at, and the increasing cost of capital, it’s a little concerning.

Just look at how the trailing P/E multiple has shot up to levels normally only seen at important inflection points.

The markets had been on a decent winning streak until Federal Reserve Chair Jerome Powell suggested last week that the central bank’s inflation-busting campaign could require two more interest rate hikes this year.

That hawkish commentary, paired with growing concerns about the economy, has dented investors’ enthusiasm…

And with little fresh economic or corporate news this week further sideways to down price action may be in our future.

Those kinds of comments, coming when the market is as overbought as it is now, would send prices lower.

Check out the current overbought RSI indicator, which has not been this high since the peak in the market last August.

At a minimum, a pullback would be entirely natural and could see the price of SPY pull back to the 50-day moving average, currently around the $420 level.

More significant price/volume support is currently between $405–$410.

One thing is for certain and that is breadth has been very weak for much of this year and has diverged from the trend of the popular indexes like the Nasdaq NDX.

On Monday, the equal-weight S&P500 edged up while the cap-weighted averages fell. Perhaps money is beginning to rotate from the overplayed tech stocks to other parts of the market.

We’ll have to wait and see.

One thing that hasn’t changed is that one of the bond market’s most reliable gauges of impending US recessions is back in solidly triple-digit negative territory.

As investors absorbed disappointing U.S. manufacturing-sector data and European central bank interest rates are hiked, the spread between the 2–10 year U.S. Treasuries is now again -100 bps.

A slowing economy will probably put downward pressure on earnings forecasts in the months ahead, increasing the chance of a more significant market correction.

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