Piper Sandler advised investors to refrain from aggressive equity allocation after seeing signs of weakening intermediate-term breadth and momentum in the stock market, according to a note released Wednesday.
Equity performance was mixed. The S&P 500 fell 0.48% on Tuesday while the equal-weight S&P 500 rose 0.04%, a divergence that the firm interprets as rotation within large indices rather than broad-based selling. The Communications sector climbed 2.2% and moved above its 200-day moving average resistance.
Technology showed a split picture. The SMH semiconductor index declined 4.75% amid AI safety warnings that pressured semiconductor and infrastructure names. At the same time, software shares advanced 5% and cybersecurity stocks rose 6%, with CrowdStrike reaching a record high.
Piper Sandler pointed to multiple breadth measures that suggest weakening internals. Its 26-Week New Highs and 40-Week Technique indicators are in sell positions. The firm’s MACE trend analysis shows more stocks in weekly downtrends than uptrends, and the proportion of groups in defined uptrends fell from 53% to 43% last week.
Macro-linked market drivers added to the firm’s caution. The U.S. 10-year Treasury yield briefly topped 5.0%, and crude oil neared $105 before settling around $101.50. Piper Sandler said a sustained move in yields toward its targets at 5.2% and 5.31% would compress equity multiples, and an oil break above $106 would put $111 into focus.
On technicals, both the S&P 500 and the Nasdaq were holding support near their 50-day moving averages. Given the mixed sector action, AI-related safety warnings and an oil-driven move in the 10-year yield to 5.0%, Piper Sandler recommended waiting for improved market participation before increasing equity exposure.
The firm’s guidance reflects a preference for reduced upside risk in the near to intermediate term until breadth and participation indicators show recovery.
Market context noted in the note - Divergent index returns between market-cap weighted and equal-weight measures; sector rotation with Communications outperforming; semiconductor weakness versus strength in software and cybersecurity; breadth indicators turning negative; rising 10-year yields and elevated oil prices influencing equity multiple risk.