Here’s the reason for Monday’s massive sell-off, including an unusual new one
This is the daily notebook of Mike Santoli, Senior Markets Commentator at CNBC, with thoughts on trends, stocks, and market stats. Summer stock rebound tests come from all familiar sources. After stopping at a dime at the 200-day moving average, the S&P 500 has slipped below its “first support” area around its early June highs, missing out on the opportunity to show that only a minimal pause is needed from the In order to update the march. The indicator is now also located in the 20-day moving average, often supporting strong bullish trends. Here is the 50-day average and the midpoint between the June low and the August high (just under 4000). As the talk about these different levels and trend angles suggests, this is a very tactical bar at the moment, as the market navigates a period of relative calm at a hotly contested crossroads of market trends. We’re in a post-options period, in a less-than-friendly seasonal period as the street awaits the policy message of the Jackson Hole Federal Reserve Conference. But apart from the charts and the time of year, there was another bout of concern over European energy supplies, inflation and recession to start the week. It is sending dollar and bond yields toward recent highs and withdrawing the help they have given equities during the soaring “peak inflation” of the past two months. Stocks have never been able to painlessly absorb the 10-year Treasury yield of 3% in recent years, and the yield proves (test?) that pattern today. Europe doesn’t usually lead US markets over long periods, but it clearly fits a broader line of recession risk/policy error concern. We will see if the bar could gain a bit of momentum later in the day after the European market closes. Crude oil is more of a proxy for economic growth expectations (in Europe, China and everywhere) and risk appetite (and dollar strength) rather than a substitute for supply-constrained inflation. Working against natural gas, in a way, electricity demand/pricing issues lead to slowdown expectations and weaken oil demand assumptions. Banks are on the downside in the broad market, but are up about 1% from their morning lows, as the market tries to distinguish between better and worse sectors. The Nasdaq 100 is in a somewhat tighter spot than the S&P 500, as it continues to act as an inflated version of the broad market at every turn. This pullback has left new stalkers on the upside stranded on a potential island above. Without Apple, the Nasdaq 100 would be in a much more difficult situation. AAPL’s outperformance has been very unique – not really about reviving a broader mega-growth stock or technology more broadly. It’s Apple on one of its lines. Here’s a portion of the market column from last weekend getting into the role of stocks in this market. Apple, with nearly 27 times projected earnings for the next 12 months, hasn’t been as expensive for the S&P 500 in twelve years. The stock, with a market capitalization of $2.75 trillion, has a 7.4% weighting in the S&P 500, the highest in any stock in decades. This makes it larger than the energy and materials sectors combined, and about the size of the industries weightings of 7.9%. The S&P 500 industries comprise 71 companies that employ more than 4 million people and will raise about $1.6 trillion in revenue this year. The sector in total deals in line with the S&P 500 is just over 18 times forward earnings. Apple, of course, is one company with 154,000 employees, and it’s set to generate $400 billion in revenue this year. What does the remarkable momentum and lavish capital of Apple tell us about investor priorities and the macroeconomic outlook? It is not easy to say. The growth isn’t exciting: the company has forecast revenue and profit growth of 4% and 6% in fiscal 2023 (which begins in six weeks). Yes, there is a perception of financial safety and quality in the name, but many relatively strong stocks do not do much. Market presentation is weak but not dull: 3:1 Downside: bullish volume. VIX woke up with a second day in a row for the S&P 500 of -1%, although Monday’s usual bullish bias isn’t an entirely dramatic response. Credit markets are softer, spreads drift wider, but it is likewise not a serious pressure reaction.