Tech earnings pull equities higher; have retail investors taken over the market?

NASDAQ 100 futures were up 3.6% yesterday as technology earnings for Q1 continued to surprise positively. Sentiment is equities is strong and the NASDAQ 100 is now up 3.5% for the year despite the deepest recession since the 1930s is ahead of markets. On last night’s FOMC meeting and subsequent press conference Fed Chair Powell said that a V-shape recovery was very unlikely as society could go back and forth between opening up and locking down until a vaccine was found. Equities nevertheless powered on sending some technology stocks close to all-time highs.

While we understood the initial bounce back in late March from what was clearly an oversold environment due to margin calls we have been sceptical for weeks of the rally. But we have to accept the price momentum for now by the market and cannot rule out higher levels in equities until momentum has exhausted itself. We believe a big part of the price formation is driven by a retail investor bonanza which we will explain later on while institutional investors are more in a passive waiting position. With the end of April some larger institutional funds may consider rebalancing portfolios as the equity weights in portfolios have clearly gone up, so selling pressure from this investor group could arise in early May.