The market is indecisive in advance of the next big catalyst – Friday’s inflation report
[ad_1]
Here is Mike Santoli’s daily note, CNBC senior markets commentator. This notebook contains thoughts about market trends, stocks, and statistical information. Each day shows a very similar pattern. There is a danger of breaking down and pops and feints on a low volume tape. However, there has not been any escape from the narrow range that was awaiting Friday’s consumer price index data. It is not clear whether the CPI data will be decisive in determining the trajectory of inflation, risk assets and the Federal Reserve. However, it is the most important catalyst and it will be the key to investors and traders deciding whether they should wait for the reaction and numbers before jumping in. The indexes are getting tighter and more energy is being stored. Let’s see how the release pans out. It’s ping-pong at a small table. A break-down of more than half-percent could spark the discussion that a retest near the May lows (nearly 3,800) might be necessary. But it is not yet. The strong streak of upside breadth after the May 20 lows gives credibility to a rally. However, no indicator is perfect. Although the market had to take in some very severe macro moves, and factors that could affect investors’ pain thresholds, it has so far been much more cautious than when in retreat. German 10-year yields shot up from 0.95% towards 1.45% in just two weeks while the European Central Bank is hawkish. As Fed funds futures indicate, U.S. yields will push toward their recent highs. This is because the central banks are expected to get short rates towards 3% this fiscal year. U.S. companies continue to issue consumer-cyclical warnings, with oil prices rising and exceeding $120. All this begs the question: Is the market’s sideways trajectory a sign that there is resilience and strength or are they deferring and denial? Although the increase in weekly jobless claims is not dramatic, it shows the softening labor market that many had been hoping for. Markets won’t respond with “bad news is great news”, as it will take months to get inflation figures to support or refute the claim of peak inflation. Although the Fed’s meeting takes place next week, it is still too early to see the compelling evidence the central bank needs to abandon its “tough love” approach. A significant relief would come from gasoline prices rising. Although it is difficult to say when, refiners seem to have moved vertically in ways that suggest production margins almost at “too high.” The global refiningstock ETF (CRAK) has been tracked over its entire history. The dynamic nature of commodity business can cause rapid changes. UBS points out that the valuation reset has meant the average S & P 1500 stock looks cheaper now than it has over some 60% of its own history. Stocks saw positive future implications in 2016 and early 2010. This was more an indicator of stock valuations in 2000, early 2008 and the speed at which earnings support was fading during recessions. Although there is no clear indicator, it could be said that valuation does not pose any significant threat to long-term returns. Market breadth is soft again and the equal-weight S & P has given back a bit of its prior outperformance versus the standard S & P this month. This is partly due to the fact that the mega-caps are stabilizing. The huge Nasdaq 100 names show some of their stability and defense in slowing growth, which they were well-known for in 2020. However, this does not necessarily mean that they will take the market higher. You can see a lot of movement in the corrective area. VIX has risen slightly from its previous floor of 24. CPI and Fed keep it from falling below the 20-year-old low.
[ad_2]