Traders on the floor of the NYSE, June 29, 2022.
This is the daily notebook of Mike Santoli, CNBC’s senior markets commentator, with ideas about trends, stocks and market statistics.
- A gentle follow-through to Friday’s rally, as the S&P 500 goes a full month without making a fresh bear-market low, and the rebound makes a bid to nudge above its three-month down trend.
- Several hurdles are nearby from here, up above 4,000 on the S&P 500.
- The market has continued to act as if it’s somewhat “sold out” in the short term, with tactically oriented pros “de-risked” coming into the third quarter, as well as early weakness and late-day strength the pattern lately. No new lows in recent weeks despite another too-hot consumer price index report and a brief scare the Federal Reserve would hike 100 basis points next week is at least a small gesture of resilience.
- The bull case from here is built around four potential peaks: peak inflation, peak oil prices, peak bond yields and peak Fed hawkishness. None of these is a sure thing, but the market has clearly tried to move beyond the springtime inflation-panic and is pricing in peak fed funds rate within about a six-month window.
- The cautionary response to this is that time and trend remain, for now, the bear’s friend. It will take time to disprove that a recession awaits us and to see whether the Fed eases off its hawkish push in coming quarters even in a best case, while the broader trend in equities as well as credit spreads remains challenging and would take time to repair.
- Earnings from banks on balance have been better than feared: no real erosion in credit performance among consumers or companies and renewed focus on the net-interest boost to come. Still, the banks were pretty hard-hit entering reporting season, and the recent bounce looks rather muted on a year-to-date chart. Much left to prove.
- Been making the case for weeks that equities valuation compression reflects significant doubt about earnings-forecast reliability being priced in. So far, this idea has not been disproven. We’ll see how much of a toll consensus estimates might suffer in coming weeks. Outside of the elite megacap heavyweights, valuations are undemanding — if not yet cheap enough to just “close your eyes and buy.”
- Recent leadership by growth stocks, beat-up speculative tech and even homebuilders despite ugly data and Monday’s bleak builder survey hints at the laggard “epicenter” groups finding relief. Yet this also can simply be typical “counter-trend” action in a bear-market rally, so extrapolation of a leadership shift from the recent moves is probably premature.
- Barry Bannister at Stifel reiterating his call for a growth/cyclical-led summer rally to 4,200 on the S&P 500 today, a plausible notion that would probably take the index to a level of much mutual pain – bulls thinking it could be an all-clear, bears taking lumps for fighting the ramp. Perhaps it’s telling that it seems an aggressive bullish call to many when it would merely mean the S&P 500 retracing half its maximum loss from 4,818 to 3,636 from January to June.
- Many ways to illustrate the purge of speculative bullishness and defensive tilt of investors now. Overall positioning in index futures by large funds steeply net short …
- … while Deutsche Bank shows the performance of the stocks with the heaviest call-option volumes has turned negative, a sign the retail crowd stampeding into favorite names no longer works to goose share prices.
- Market breadth is strong again: more than 80% upside volume, even as overall turnover is light. Energy sector’s sharp correction being bought briskly.
- VIX hovering in the 24s, a very small Monday rebuild of premium. A low end of the range, not yet low enough to charge “complacency.” VIX futures slope upward over coming months, a benign setup for now.