A complete disconnect between S&P 500 new Highs and Economic fall out

The disparity between US tech stocks and their global counterparts has reached unprecedented levels, now standing at approximately 1.8x. This ratio has doubled over the past five years and is approaching triple the levels observed during the Dot-com bubble era. Over the same period, the Nasdaq 100 index has surged by an impressive 155%, illustrating the dominance of US tech stocks in global markets.

Valuations within the S&P 500 Technology Sector have also surged, with the price-to-sales (P/S) ratio hitting a record high of around 10x. This surpasses previous peaks seen during the 2021 surge and even exceeds levels witnessed during the Dot-com bubble. Big Tech companies have seen their P/S ratios double in just over a year, accompanied by a sector-wide rally of over 50% since the beginning of 2023 and more than 100% since the start of 2021.

Nvidia ($NVDA) has achieved an extraordinary feat in the first half of 2024, adding nearly $2 trillion in market capitalization. This surge places Nvidia's market value higher than all public companies worldwide except for five, underscoring its historic performance. However, amidst this monumental rise, hedge funds have been aggressively selling US tech stocks at the fastest pace in at least seven years, as reported by Goldman Sachs. The sell-off has primarily targeted semiconductor stocks, followed by software and internet stocks.

The Nasdaq 100 has demonstrated impressive gains, rising 18% year-to-date and 40% since October 2023. Similarly, the Semiconductor Index ($SOX) has soared by 30% and 70% over the same periods, leading $SOX relative to the S&P 500 to levels surpassing those seen during the Dot-com bubble and approaching all-time highs.

Reflecting investor sentiment towards Nvidia's performance, the 2x Leveraged Long NVDA Daily ETF ($NVDL) experienced a record $743 million inflow recently, even as Nvidia's share price dropped by 13% over three days starting June 18th, contributing to a 25% decline in the ETF's price. Nonetheless, year-to-date, the ETF remains substantially up by approximately 329%. Conversely, the 2x Short NVDA Daily ETF has plummeted by about 90% this year alone.

Currently, the Magnificent 7—dominated by tech giants—now collectively account for over 30% of the S&P 500, signaling significant concentration in the market. Despite these lofty valuations, approximately 90% of Wall Street analysts now maintain a buy rating on Nvidia, a stark contrast to the roughly 30% a decade ago. This surge in optimism follows Nvidia's staggering 27,989% share price increase over the past decade, underscoring Wall Street's bullish sentiment despite historical precedent suggesting caution during periods of intense market enthusiasm.

In the first quarter of 2024, foreign investors poured $187 billion into US corporate bonds, marking the highest influx in over six years. This surge, up 61% from the previous year, was reported by Apollo Global Management. Increased demand was particularly notable among investors from Asia and Europe. Concurrently, there was a near-record issuance of bonds, rising approximately 20% year-over-year. US corporate debt now dominates 75% of the global long-dated corporate bond market, leaving investors with few alternatives. This has led to a significant heating up of the corporate bonds market.

Meanwhile, US consumers' inflation expectations for the next 5-10 years have spiked to 5.6%, the highest level in 31 years, rising by approximately 2 percentage points in just a few months. In comparison, median inflation expectations remain around 3%, consistent with readings from the past three years. Consumer Price Index (CPI) inflation has remained above 3% for 38 consecutive months, the longest stretch since the 1990s.

US consumer finances are facing challenges reminiscent of the Great Financial Crisis, with serious delinquencies (90+ days) on credit cards reaching 7%, the highest since 2011. Total credit card debt stands at $1.1 trillion, with $78 billion of this debt nearing default.

Despite these economic pressures, there is a notable increase in interest towards bonds. The popular bond-tracking ETF $TLT recorded a record $2.7 billion inflow on a recent Monday, and year-to-date inflows have reached $4.4 billion, potentially setting a new annual record. This surge in interest comes even as $TLT has seen a decline of 4% year-to-date and 37% over the past four years.

The US bond market remains the largest globally, valued at over $51 trillion, nearly twice the size of the US GDP. However, recent data shows only 47% of newly constructed apartments in Q4 2023 were rented within three months of completion, marking the second lowest rate in at least 12 years. This is down from a peak of 74% in Q3 2021, indicating potential challenges in the housing market.

Financial markets have shown mixed performance, with the S&P 500 posting its strongest first half of an election year since 1976, while the Russell 2000 index has faced its worst relative performance against the S&P 500 in history. The S&P 500 reached 31 all-time highs in the first half of the year, the second highest number in 25 years, suggesting optimism for continued market gains in the second half.

 The 2^nd Quarter results will make the U.S stock market to rise more.  The economic disparity will only widen going forward since the stock market is dependent on IT segment and buyback where as the real economy is struggling with higher interest rates.