Piper Sandler warns on equity exposure as market breadth weakens

Investing.com -- Piper Sandler advised investors to avoid aggressive equity exposure as intermediate-term breadth and momentum in the stock market show signs of weakening, according to a note released Wednesday.

The S&P 500 dropped 0.48% on Tuesday, while the equal-weight index added 0.04%. This difference indicates rotation within major indices rather than widespread selling. The Communications sector rose 2.2%, breaking above its 200-day moving average resistance.

The technology sector showed mixed performance. The SMH semiconductor index fell 4.75% as AI safety warnings affected semiconductor and infrastructure stocks. Software stocks rallied 5% and cybersecurity stocks gained 6%, with CrowdStrike reaching a record high.

Market breadth indicators point to weakness. Piper Sandler's 26-Week New Highs and 40-Week Technique indicators are in sell positions. The firm's MACE trend analysis shows more stocks in weekly downtrends than uptrends. Groups in defined uptrends fell from 53% to 43% last week.

The 10-year Treasury yield briefly exceeded 5.0%, while crude oil approached $105 before settling near $101.50. The firm said a sustained rise in yields toward targets at 5.2% and 5.31% would compress equity multiples. A move in oil above $106 would target $111.

The S&P 500 and Nasdaq hold support near their 50-day moving averages. Piper Sandler said AI safety warnings and an oil-driven spike in the U.S. 10-year bond yield to 5.0% suggest waiting for improved market participation before increasing equity exposure.

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