This is the daily notebook of Mike Santoli, CNBC’s senior market commentator, with ideas for trends, stocks, and market statistics. The S&P 500’s fifth gain of more than 5% since the market peak on January 3 is underway. The index is 8% above the intraday low for this downturn set a week ago. The previous four points faltered and gave way to a further slide to new lows. Is the current rally more likely to continue? The most recent bounce came from a 20% downturn, although we have yet to close below that threshold, giving this pullback the chance to be the fifth since 1990 to stop at just below that threshold. 20% decline (1990, 1998, 2011, 2018 are other years). This history is now well known and certainly known tactical algorithms. It’s not clear if this is a relevant input or just a salon game, but so far it’s been around. We entered the week with a rare seven-week losing streak, so a meaningful reversal is the main ally of the bulls. Post-option expiration factors and month-end factors are also positive. While trading volumes aren’t huge (they almost never increase, by the way) the three-day bull run is happening with very wide participation, 80%+ volume up since Wednesday. A push above last week’s high (around 4,090 on the S&P 500) is a modest plus. The move is bouncing off its lowest valuation since the Covid fallout, with the market absorbing some unclear retail and tech results and investors at least temporarily at peace with the market. Federal Reserve tightening outlook. All in all, but nothing here frees the market from lingering echoes of the post-2000 slow-moving Nasdaq Composite destruction or the feeling that the Fed is adamant about cutting financial conditions. if the market loosens them too much to their will. If the current level of the S&P 500 near 4,120 rings, it could be because it is the lowest intraday low noted by traders in two months, setting the date of Russia’s invasion of Ukraine: February 24. A reminder for both. that this has held for nearly five months at the large-cap index level (like 15 months for growth stocks) and that the market has merely returned to what was once considered a “must hold” level. when reducing . The consensus seems to be that this is a bear market rally unlikely to lead much higher. This is reasonable and prudent, and not a bad thing for stocks whose skepticism is quite full. However – as asked here on Thursday – after months of bearish buyers running through and dismay, could the “protest sellers” be due to a tougher test of confidence? their? What matters more to most as to whether this is a bounce to sell or chase is whether the correction rebuilds value in a way that has improved the risk/reward bargain for traders. long term investment or not. It’s fair to call valuations – both absolute and relative to bond yields – neutral rather than really cheap, not back above 17 times last year’s earnings after bottoming out at 16, 5. The pendulum usually swings right past “fair value” in pressured markets, but sometimes it spends very little time reading “cheap”. During the sell-offs in early 2016, late 2018 and early 2020, the S&P 500 index spent just a few weeks below 16 times forecast earnings before surging higher. Yes, if we were to watch the recession indefinitely and forecast earnings to suffer a lower hit, the stock could chase lower earnings, but it’s not clear there’s a magic valuation zone that we are aiming. Will sentiment/positioning remain depressed enough to fuel a risky rally? Possibly, as measured by both U.S. Central Bank bullish and bearish surveys and gauges, based on a number of market-based traffic, positioning, and credit metrics. Of course, the index stays low for extended periods of time when the market is in trouble, but during non-crisis periods, lows tend to insulate the market from an immediate drop. , large and elongated. This morning’s personal spending inflation numbers were mostly as expected. With a third consecutive monthly core PCE of 0.3% and annual core numbers now below 5%, this offers some protection for those willing to assume a “peak inflation” story. is grounded. Energy prices don’t cooperate with this view, but the continued shift to services spending away from goods should help in the near term, as the labor market cools with a slowdown in hiring in the regions. large and small companies. We’re going through a tough earnings season. The end of the month force will dissipate around now. The next Fed meeting is more than two weeks away, and it’s not clear whether the upcoming job numbers will be the main driver of the market. The tape is quite thin and not loose, with air pockets on the top and bottom. It will likely continue to do so as the summer trade isn’t officially underway. Market breadth, as noted, is strong again, trading volume up 80% on the NYSE and more new highs than lows. Credit continues to rise, spreading risks have stepped back from the brink at a more worrisome level. The VIX is fairly soft, both with the index’s higher levels, more muted intraday moves and the upcoming three weekends blocking expected volatility – making that a safer case to relax. We’ll see next week if that’s the case.