Piper Sandler has advised caution on increasing equity exposure, citing deteriorating intermediate-term market breadth and momentum despite gains in selected sectors of the US stock market.
In a note released Wednesday, the firm highlighted differences in performance across major indices and sectors. The S&P 500 declined 0.48% on Tuesday, while its equal-weighted counterpart gained 0.04%, indicating that losses were not evenly distributed across the index.
The communications sector advanced 2.2%, moving above resistance at its 200-day moving average.
Technology stocks recorded divergent performances. The SMH semiconductor exchange-traded fund fell 4.75% amid AI safety warnings affecting semiconductor and infrastructure companies.
Software stocks, meanwhile, gained 5%, while cybersecurity shares rose 6%. CrowdStrike (NASDAQ:CRWD) reached a record high during the session.
Despite these sector-level gains, Piper Sandler identified deterioration in several measures of broader market participation.
The firm’s 26-Week New Highs and 40-Week Technique indicators are both signalling sell positions, while its MACE trend analysis shows that more stocks are experiencing weekly downtrends than uptrends.
The proportion of market groups in defined uptrends declined to 43% last week from 53% previously.
Bond yields and commodity prices were also identified as factors affecting the equity outlook.
The US 10-year Treasury yield briefly moved above 5.0%, while crude oil approached $105 per barrel before settling near $101.50.
Piper Sandler said a sustained increase in Treasury yields towards 5.2% and 5.31% could put downward pressure on equity valuation multiples. The firm also identified $106 as a technical threshold for crude oil, with a move above that level pointing towards $111.
Both the S&P 500 and Nasdaq remain near support levels corresponding to their respective 50-day moving averages.
Against this backdrop, Piper Sandler recommended waiting for an improvement in market participation before increasing equity exposure, citing weakening breadth indicators, AI safety warnings and the recent increase in Treasury yields associated with higher oil prices.