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Introduction

In our 4/22 report, Happy Power Trend Day!, we discussed a market phenomenon that tends to accompany some of the strongest advances.

Power Trends are the type of rallies that leave lagging investors stranded. Buyers waiting for the “perfect pullback” never get one, while underexposed participants are forced to chase strength as the market relentlessly grinds higher. Pullbacks become shallow, dips become brief, and adding meaningful exposure becomes psychologically difficult as price continues to move away from hesitant buyers.

Those who fought the trend have spent the last several weeks watching the market climb with very little opportunity to comfortably board the moving train.

Since that report, the major indexes have continued their ascent, with the tech-heavy Nasdaq 100 Index (NDX) leading the charge and adding another +8.5%.

Underinvested investors are attempting to chase the trend and having very little success doing so given the narrowness of the rally. The crowding into mega-cap leadership has become increasingly self-fulfilling, as performance pressure forces capital into the same small group of names driving the indexes higher.

This dynamic is evident in the Dow Jones Industrial Average, which has barely participated during this advance. All rallies are not created equal, and the current lack of breadth is making it exceptionally difficult for professional investors to catch up if they entered this move underexposed.

Power Trends do not require broad participation, and while we would certainly prefer to see broader expansion underneath the surface, the reality is that stubbornly high oil prices and persistent uncertainty surrounding the Iran conflict continue to pressure large portions of the economy. Outside of a narrow group of AI-linked beneficiaries, many areas of the market remain far less impressive than the index performance would suggest.

Which raises an important question: if not for the astronomical wave of AI infrastructure spending currently flooding the system, where would this economy — and market — actually be? Probably not in a very good place.

Consider this: Morgan Stanley projects hyperscaler capex could exceed $800 billion in 2026 and potentially reach $1.1 trillion in 2027. Some estimates now suggest AI-related capex could account for roughly 67%–75% of incremental U.S. GDP growth in 2026 alone.

In other words, AI is no longer simply supporting the economy — it is increasingly becoming the economy.

While estimates may vary depending on who you ask, the broader conclusion remains the same: AI infrastructure spending is driving an outsized portion of economic growth.

And where is that growth manifesting? Large-cap technology — most notably semiconductors.

Below are the top 20 contributors to the SPX advance, collectively responsible for more than one-third of the index gains. Six of the top 10 and 12 of the top 20 are semiconductor-related names. Nearly every company on the list has meaningful exposure to AI infrastructure spending in some form or fashion.

So yes, keeping pace with the index when leadership is this concentrated becomes extraordinarily difficult without owning the same overcrowded trades as everyone else. That is the paradox of the current Power Trend: the benchmark keeps climbing, but participation remains narrow enough that many professional investors still feel left behind.

Alas, the job of a professional investor is not an easy one.

And our research is not necessarily designed to help you beat the indexes every step of the way. It is designed to keep you aligned with the prevailing trend and, more importantly, prevent you from getting run over fighting it.

Since our 3/22 report, we have consistently advocated getting long and staying long despite widespread skepticism and macro uncertainty. If you heeded that message, you should be doing quite well — or at the very least, not falling materially behind in one of the most concentrated rallies in recent memory.

Since that report, the Nasdaq 100 (NDX) has surged roughly 22%, while the SPX has advanced a little more than half that amount.

In a market where leadership has remained exceptionally narrow and underexposed investors continue scrambling to catch up, simply staying aligned with the trend has been half the battle.

Skeptics will tell you we are in a bubble. Maybe we are. We don’t care; it’s not our job to have opinions about why. We care about the what. And the what, is price.

We study price and make determinations about where price is likely headed. After all, price is the only thing that pays. Not opinions. And until skeptics of our work relinquish the need to constantly rationalize every move and adopt a more agnostic approach, they will likely continue struggling in environments like this.

We provide a unique framework for how to think about and analyze price. Is it perfect? No, nothing is. But we haven’t spent the last several years consistently fighting major trends, and that alone is worth the price of admission.

Moving on.

Remember, Power Trends and strong market advances can continue far longer and carry prices far higher than most people think is reasonable. And while we can attempt to identify where those moves may begin to exhaust themselves using DeMark analytics, Fib extensions, and internal analysis, the reality is tops are difficult. There is no bell ringing at the top of the market telling you to get out.

What we can do is identify areas where conditions become increasingly stretched and susceptible to mean reversion. But susceptible does not mean guaranteed.

More importantly, we haven’t once suggested aggressive bearish positioning over the last six weeks. Could that change this week? Sure. But until we see stronger evidence that a meaningful turn is underway, we remain long biased.

A few things worth considering that we found interesting.

1) BTFD under Trump is real.

Drawdowns under a Trump presidency tend to be swift, painful, and V-bottom in nature.

2) Investors have figured this out and aggressively deploy capital during periods of turbulence.

Every meaningful drawdown increasingly gets met with fast dip-buying behavior as investors attempt to front-run the next V-bottom recovery.

3) Seasonality under Trump has tended to favor a March dip followed by stronger summer performance.

While seasonality should never be used in isolation, the historical tendency for weakness into March followed by firmer summer price action continues to align fairly well with the current market structure.

At the very least, this tells us to keep an open mind about future outcomes. “Sell in May” could very well prove to be a mistake. It is entirely possible that a portion of the historical mid-term weakness was simply pulled forward during the Iran war volatility earlier this year.

And in line with the chart above, the Stock Trader’s Almanac also suggests that markets have historically tended to move more sideways following the onset of war rather than collapse outright.

That doesn’t mean risk disappears. It simply means the path forward may look much different than the consensus currently expects.

Outside of the macro influences, earnings season has also continued to support equity prices. According to Bloomberg Intelligence data, corporate America has exceeded expectations by the widest margin outside of the Covid-era since at least 2013.

First-quarter profits for SPX companies have surged roughly 27% thus far, more than double the ~12% growth analysts had penciled in heading into reporting season. Outside of major recovery periods following economic shocks, the last time year-over-year earnings growth expanded at that pace was more than two decades ago in 2004.

In other words, while many continue searching for reasons the market shouldn’t be rallying, the underlying earnings backdrop has remained far stronger than most anticipated.

Economic resilience has largely silenced fears of an imminent slowdown in global growth, while concerns that massive investments into hyperscalers and adjacent AI infrastructure industries would fail to translate into meaningful profit growth also appear increasingly overdone.

The first quarter has been strong enough that Wall Street firms will almost certainly need to raise both full-year earnings estimates and likely their year-end SPX targets as well.

And importantly, it hasn’t just been large-cap tech carrying the entire load. All eleven SPX sectors are currently posting positive earnings growth — the first time that has occurred in four years.

So while price action has remained heavily concentrated, the underlying earnings picture beneath the surface has actually been broader and healthier than many appreciate.

If this is true, then why hasn’t market breadth fully caught up?

Our guess is stubbornly high oil prices and the lingering fear that elevated energy costs will eventually pressure consumer spending and broader economic activity. That dynamic has helped keep capital concentrated in perceived “safer” growth and AI-linked beneficiaries while many economically sensitive groups continue to lag underneath the surface.

Which also implies that any sustained reversal in oil prices would likely trigger a reversal in the current large-cap tech crowding and spark rotation into laggard, more economically sensitive areas of the market. Ironically, that type of rotation could temporarily pause the recent index advances as capital gets redistributed underneath the surface.

The good news? If and when that rotation comes, we intend to be there helping steer clients into it.

Now let’s dive into the charts.