In the Tokyo stock market on May 27, the Nikkei Stock Average closed at 64,999, up 3 yen from the previous trading day, posting a marginal rebound. The market pared most of its massive early gains to finish near its intraday low, just hovering above negative territory. The benchmark index had surged more than 1,400 yen shortly after the opening bell, climbing to the 66,400 level. Given that the previous all-time closing high set on Monday, May 25, was 65,158, a fresh record high appeared secure before the index reversed course. While tech shares were heavily bought following a semiconductor rally in the U.S. market the previous day, SoftBank Group Corp. <9984> plunged sharply under a torrent of profit-taking, wiping approximately 450 points off the Nikkei Average. Meanwhile, ADVANTEST CORPORATION <6857> posted solid gains to partially offset the drag.

From May 28, the market will effectively enter the June trading period. Throughout April and May, the Nikkei Average rallied sharply with powerful momentum, easily clearing the 60,000 milestone. Considering the index stood near 51,000 at the end of March, it has surged approximately 16,000 points in just two months to its May 27 intraday high. This rapid rally has defied even the most bullish market forecasts, raising questions over underlying rational valuations at these elevated levels.

The upward trajectory was not without temporary corrections. In mid-May, the benchmark index fell for five consecutive trading days from May 14 to May 20, shedding nearly 3,500 points in total due to renewed concerns over rising global long-term interest rates. While growth stocks in the tech sector typically face headwinds during rate hikes, this correction proved to be a brief consolidation phase before the next leg up for artificial intelligence (AI) and semiconductor-related shares. Speculative short positions were ultimately absorbed by a powerful short squeeze. Driven largely by algorithmic and AI-driven trading systems that overwhelmed conventional retail market sentiment, the index extended its gains, validating the market maxim that equity rallies often climb a wall of worry.

However, the strength of the Nikkei Average and TOPIX does not reflect the broader market's health. Headline index gains highlight a stark economic divergence, where AI and semiconductor-related sectors remain supported by solid earnings data, justifying their elevated valuations. Conversely, this sharp polarization has created a growing number of lagging stocks that fail to reflect the strength of the major indices. Whether a mean reversion can occur over the medium term remains a key structural challenge for the market.

This divergence is clearly evidenced by the net new highs-to-lows ratio during this rapid uptrend. Among the 1,560 stocks listed on the Prime Market, new lows have overwhelmingly outnumbered new highs since late April. Although both the Nikkei Average and the broader TOPIX renewed their all-time highs on May 25, the number of individual stocks hitting new lows during this process far exceeded those hitting new highs. Over the past month and a half, stocks hitting fresh highs exceeded 100 on only five or six sessions, whereas new lows occurred roughly 16 times, with six of those days exceeding 200 stocks. Furthermore, the cumulative total from the beginning of May through May 26 shows new highs at 1,495 against 1,990 new lows?a deficit of approximately 500 stocks, meaning 33% more equities hit new lows. This internal breadth underperformance indicates that beneath the headline index records, the broader market trend resembles a stealth downtrend.

Sector performance on May 27 mirrored this internal weakness; alongside SoftBank Group's heavy negative contribution, domestic value sectors including financials, real estate, construction, and warehousing booked notable losses. The key question forward is whether institutional capital will rotate into these depressed value sectors from crowded AI and semiconductor plays. Market participants remain focused on how long this narrow, tech-driven rally can sustain the Nikkei Average at record levels amid an otherwise sluggish domestic economy.

On the economic calendar for May 28, weekly cross-border securities transactions will be disclosed prior to the market open, and the "Wireless Japan × WTP 2026" exhibition commences at Tokyo Big Sight through May 29. Regionally, central banks in South Korea and South Africa will convene to announce their respective policy rate decisions. In the United States, a cluster of tier-one economic data will be released, including April personal income, the Personal Consumption Expenditures (PCE) price index, April durable goods orders, weekly initial jobless claims, April new home sales, and the revised Q1 GDP reading. The U.S. Treasury will also host a 7-year note auction, and market participants will closely monitor a scheduled speech by New York Fed President John Williams for policy cues. Financial markets in India and Indonesia will be closed on May 28.

Source: MINKABU PRESS

*Translated by generative AI. Click here for the original article.