Santoli: One key tech ETF may signal whether this bull market can keep marching on

The winds have shifted back in favor of AI consumption plays over AI construction proxies. This ETF could be the tell on the bull market. Not all bad: Higher yields may make bonds an effective buffer against any sudden, unexpected down moves for stocks.

Wall Street emerges from the summer respite with its resolute commitment to stocks validated, for now. The S&P 500 has done just enough to preserve its upward path, last week's brief and modest pullback approaching but never breaching the top of its May-July range, the index forgoing several excuses to retreat more fully while keeping the corrections stealthy below the surface.

The steadiness at the index level reflects full sponsorship of equities by professional investors, who appear undaunted by the ubiquitous warnings of weak post-summer seasonal patterns. Or perhaps they're simply encouraged that any such September-October accidents tend to be cleaned up later in the fourth quarter.

Measures of equity exposures and risk appetites from Goldman Sachs, State Street, National Association of Active Investment Managers and Bank of America agree that asset allocators are "stocked up" for the fall. Leuthold Group maintains a Courage/Fear Ratio, which has climbed to around an 18-year high. It tracks a Courage portfolio (small caps, emerging markets, commodities and cyclical S&P 500 sectors) against a Fear basket (U.S. dollar, gold, S&P low-volatility stocks and 10-year Treasurys).

Barclays equity strategist Venu Krishna noted last week that individual investors' aggression has calmed somewhat: "Retail participation has softened in recent weeks, suggesting the latest wave of FOMO has been driven primarily by institutional investors rather than individual traders." It tracks with the pros' discipline of chasing earnings growth, which has been the single strongest bullish input, even if the risk that big companies are "over-earning" due to AI-capex pulling profits forward is quite real.

A Cboe S&P 500 Volatility Index (VIX) below 15 – appropriately if not sustainably low – also instructs some big-money quant models to keep the risk tachometer pinned in the red.

It's true, too, that a couple of paramount worries have failed to crystallize. Concern over wobbly U.S. macro conditions that would render any Federal Reserve rate hike a mistake was eased by a firm run of data last week culminating in a strong payroll report. And the growing, rational unease with the pace and sustainability of the AI-investment supercycle found little tangible support throughout earnings season, with the "spenders" upping capex projections and the "vendors" raising guidance, all the way through Dell and Broadcom last week.

Higher yields not all bad? Of course, both these dynamics – solid economic growth and unceasing AI capex intentions – are feeding what remains a key anxiety and preoccupation of investors: Rising bond yields. The march higher in 10-year Treasury yields toward 4.8% is still probably best viewed as a "normalization shock," in which rates find their way back to their pre-global-financial-crisis range and revert to their pre-2000 relationship with equities (rising yields correlating negatively to stock prices). As noted here last week, the absolute yield levels are fully compatible with sturdy equity markets. But because we got to 4.7% 10-year Treasury yields this time from below 1% six years ago, it's experienced ...