Equity markets remain buoyant, with mega-cap technology continuing to dominate index performance. The top 10 stocks now make up nearly 42% of the S&P 500, raising concerns about unhealthy concentration and the gap between stock market valuations and the broader economy. Notably, OpenAI struck a $300 billion deal with Oracle, supported by NVIDIA’s $100 billion investment, highlighting the powerful but complex dynamics in AI and semiconductor markets. While valuations in companies like PANW and CRWD are stretched, opportunities remain in less obvious technology names such as MRVL and CRM, particularly with CRM pushing deeper into AI. Additionally, cyber security remains a focus, with FTNT being evaluated as a more reasonably priced alternative.

From a macro perspective, Federal Reserve policy shifts are beginning to shape sentiment. With two additional rate cuts expected this year, bringing the Fed Funds rate down to 3.75%, yield-oriented equities may become attractive as money market yields decline. Technical indicators suggest the S&P 500 is overbought at the top of a steep channel, while small caps hover near a five-year high with potential for breakout. Meanwhile, liquidity pressures persist as Fed balance sheet reductions, shrinking bank reserves, and collapsing reverse repo activity create systemic stress. These dynamics underscore the importance of balancing growth opportunities in technology and AI with defensive positioning in yield-generating equities like KMB, which combines stable fundamentals with a solid 4% yield.
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