This is the daily notebook of Mike Santoli, CNBC’s senior market commentator, with ideas for trends, stocks, and market statistics. Finally, from the dark abyss after the downhill, the expected rise emerges. The tape was sufficiently oversold and traders became desperate in their selling to make both recent bears and hopeful bulls conclude that “enough for now.” As noted yesterday, CNN’s Fear & Greed Index is mostly pinned to the bare minimum, active tactical traders in the National Association of Investment Managers’ survey. Positives are at a two-year low in terms of equity exposure. Many technical signals “sold out” broke out. The S&P 500 fell 20% before the mechanical limit order was introduced: machines with a long history of severe declines halted, or at least halted, just closing down 20% . So what now? Even those who believe a confirmed downtrend is afoot and would still allow to think that the S&P 500 could rally another 5%-7% from here before encountering some heavy friction . Keep in mind that will only take the S&P to the upper end of the 4,100-4,300 band, which acted as support for about three months prior to the most recent spill. Many will be watching to see if we close with NYSE volume up 90% or more, which is often seen as a sign of emerging buying momentum that could lend credence to the bullish scenario. The historical forward returns after we’ve removed the sentiment and dropped 15% + stocks pretty quickly are generally favorable if you look a year out, but with a few very large downside exceptions (2000 , 2008). This makes a recession/non-recession quite consequential in terms of taking on further potential downside risks. It’s hard to see how earnings forecasts for the second half of the year aren’t starting to leak lower, but arguably the six compressed P/E points in the S&P 500 valuation have somewhat taken that into account. Does the pullback from historically extreme valuations and the leadership of highly-valued growth stocks concentrate stop at valuations that are nearly as “neutral” as the 16x forward price earnings we’ve seen? Did we hit it yesterday, or will the market do the typical spike? An honest question, not entirely pompous. When the index fell to about 14x futures earnings at the end of the 2015-16 and 2018 corrections, it barely spent its time there. However, the fear and damage in equities makes new lows more severe than we’ve seen so far. Is the value currently emerging at least in certain regions of the market containing branded companies with stable “quality” attributes? It may be so. Sweeping a basket of specific quality growth shows that these consumer, financial, and media-related stocks are pushed to a substantial discount from their decade-long average valuations. You can certainly fall into a value trap this way, but long-term investors today seem to have a long shopping list to consider. Markets rallied after Federal Reserve Chairman Jerome Powell’s comments on policy, the possibility of not achieving a soft landing, etc., implying that everything has been priced in is almost already in the mind of the trader. this problem group. Treasury yields rose but were far below recent highs, which is more an easing of the recent flight from risk than a positive rethink of Fed expectations. The Fed wants to make two, or ideally three, half-percent hikes this summer. We could argue about whether something could be broken before that to change plans or if falling inflation would provide some headroom, but those are hypothetical timeline markets. worked with. So far the market breadth is watching for one of the 90 percent gains in volume on both the NYSE and Nasdaq. If it sticks, we’ll hear about “thrust in width” and how reliable they are. The stocks that are most discarded are gaining the most, which can only be predicted. The VIX eventually sunk below 30, perhaps vindicated for not shooting to 40 on the latest S&P 500 slide. It states that continuous bumping should be expected but there is no acute stress in the system. 4 out of every 10 trading days this year have seen at least 2% of the S&P 500 range on the day, so this will have to subside before the VIX can start to slide back to normal. nearly 20 years longer.
Traders on the floor of the NYSE, May 13, 2022.
Brendan McDermid | Reuters
This is the daily notebook of Mike Santoli, CNBC’s senior market commentator, with ideas for trends, stocks, and market statistics.