US Stock Market Faces Divergence Amid Tech Outflows and Record Rally

The US stock market is facing a test this week as it grapples with significant outflows from technology funds, despite trading close to all-time highs. The S&P 500 closed last Friday just 0.4% under its record high set on Thursday.

Technology funds saw $4.62 billion in outflows through Wednesday, while growth equity funds recorded inflows totaling $8.78 billion - the biggest addition since November 2024. This indicates persistent demand for growth stocks, but with greater selectivity from investors.

Corporate profit expansion is supporting the index, with nearly 85% of S&P 500 firms surpassing quarterly forecasts. Excluding mark-to-market gains from two major technology firms, earnings increased by 32.7%. However, valuations offer limited cushion, with the S&P 500 trading close to 20 times forecast earnings.

This week's key events include retail earnings reports and the release of Federal Reserve minutes. Home Depot, Lowe's, and Walmart will report their quarterly results, providing insight into consumer demand and housing market trends. The minutes could clarify interest rate discussions, but they were recorded before Friday's disappointing retail sales data.