Nvidia’s rebound may be a hint that the market is down enough right now
This is the daily notebook of Mike Santoli, Senior Markets Commentator at CNBC, with thoughts on trends, stocks, and market stats. Retreating buyers have been ridiculed and humbled by the market for nearly five months. Is it time to challenge those who confidently “sell rallies” to prove their conviction? Probably. Even bear markets are not uniformly generous to those in a lower stock price situation, with deceptive bounces frequently interrupting the downtrend. We’ll see if the current rebound attempt develops into something like this. For now, suffice it to say that the market is finally beginning to show signs that it has pricing in a negative enough Fed/growth outlook while showing greater balance and differentiation in picking out the relatively winners and losers. As it stands, the bar has managed to capitalize on some of the potential tailwinds cited last week: low investor sentiment and the position of the S&P 500 defensive fund manager trumpeting a 20% drop, as it has several times in history before settling seven times over straight. The weeks leading up to this week were very positive historical patterns after May options expire and before Memorial Day, potential momentum for the S&P 500 near a range of negative targets from 3800 to 3900 Declining Treasury yields could be a diversification in equity securities and lift some pressure . From month-end valuations to rebalancing stocks after they defaulted badly on bonds in May. Eight days ago. It’s the last in a series of reasonable bottom line formations (previous formations failed before long). It arguably has a better chance of holding it a bit, given the reasons above and the fact that the major project in the market this year – squeezing valuations and absorbing tighter financial conditions – has gone even further with each passing week. Lots of tactical calls for any additional impulse in the S&P 500 being headed in the 4200-4300 region, and above that there are other barriers that were previously difficult to overcome (4400 and 4600), as mentioned, bear markets lead to a lot of frustration and disappointed hopes In both directions. Retailers are rising (most of them halved) on a string of results showing decent top-line spending, frictional costs, and some hits and errors depending on the category. This supports the notion that talk of a recession is premature and that cyclical experts on consumers have become too excited to continue declining in the short term. The market is able to rally after the pessimistic forecast from SNAP. Nvidia’s reversal of its steep slump into Thursday’s gain lends credence to the “get down enough for now” story. Credit markets were showing more concern about economic growth and default risk, another case of those tighter financial conditions, but junk debt lured buyers at these levels to tighten margins against Treasury. Not everything is obvious but a welcome sign. The response to the Fed minutes was mostly “no new news,” but it did allow for the idea that after a possible full percentage point of gains during July, it might show some resilience in September. The big picture still has suspense as to how inflation approaches here, and it remains a narrow and bumpy path to a “soft landing”. However, market-based expectations suggest that the Fed may not have as much leeway for the gains as expected. The uncertainty inherent there will likely limit risky assets to some level below all-time highs, but there is plenty of room between here and there. Despite all the attention to the faint signs of technological resilience, energy stocks remain nearly undisputed leaders regardless of what other groups are doing. Crude oil and natural gas are strong even with demand issues and the shutdown of China. The SPDR ETF (XLE) Select Energy Sector accelerated higher, up 57% this year. The margin of outperformance is growing to rare extremes, and one should expect pullbacks and tests, but perhaps this will challenge confident calls that “peak inflation expectations” are firmly in the past. The breadth of the market is very strong, with the volume of trading on the New York Stock Exchange up almost 90%. This paired with 83% for Wednesday, stopping the box for those asking if this rally is well supported (several days’ 80% supply is a signal that some technicians who measure stock supply/demand are watching). VIX tumbled lower, below 28, mimicking nervous but not entirely panicked stocks. Followers of Morgan Stanley derivatives say it’s common for bear markets to see a VIX peak within two months of a market peak and then regress, so there is no real anomaly in how VIX has behaved lately by these lights.