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Here's why the big trend driving the bull market 'cannot continue'

  • The S&P 500's tech sector is holding up the whole market this month. How long can it continue to do so?
  • The information technology sector rose 2.5 percent in the first two weeks of May.

Only one of the S&P 500's 11 sectors is up for the month of May, and that could suggest trouble for the overall market.

The information technology sector rose 2.5 percent in the first two weeks of May. Even though every other sector is in the red, the gains in the market's most heavily weighted sector have still managed to keep the overall S&P mildly in the green for the month.

Even within the tech sector, the advances have largely been driven by Apple, which makes up nearly 4 percent of the S&P 500. Nvidia, Alphabet and Amazon also have been significant contributors.

Putting it in a slightly different context, Miller Tabak equity strategist Matt Maley points out that five key stocks — the so-called FANG quartet of Facebook, Amazon, Netflix and Google parent Alphabet, plus Apple — have collectively seen their market capitalization increase by more than $250 billion since the S&P hit record highs on March 1. Yet the S&P is flat since that date, as the rest of the stocks in the S&P have collectively fallen by about that much.

The narrow range of leadership is "something that cannot continue," Maley wrote to CNBC on Friday. "Since the tech stocks are overbought on a daily, weekly and monthly basis, it could mean that both this group and the broader market will pull back soon."

The low number of stocks driving the gains is "a sign things are getting a little frothy, at least in the near term," he added in a Friday interview on CNBC's "Power Lunch."

Stacey Gilbert, head of derivative strategy at Susquehanna, sees things a bit differently.

"I wouldn't say it's frothy," Gilbert said Friday on "Power Lunch." "You could make the argument that tech is playing a bit of catch-up here," given that after the election of Donald Trump, "the initial trades were reflation, deregulation and economic growth, which is why financials, industrials and materials took off."

Investor optimism about Trump, however, has shifted toward expectations for "tax reform" — which is good news for those tech companies, such as Apple, that have large untaxed stockpiles of cash overseas. Indeed, 10 percent of the total market value of tech stocks in the S&P 500 is made up of overseas cash, according to Gilbert.

"If that money comes back, that has the potential to be really supportive here in tech, between buybacks, dividends and M&A," Gilbert said.

In other words, Gilbert's view is that the "Trump trade" as alive and well — but it is just shifting into tech.

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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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