Mike Santoli's market notes: Mean reversion day, tech stocks hit Street targets, earnings ahead

Published Fri, Jul 10 20202:19 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. The prevailing trend was stretched, and everyone could see it. Tech over everything, growth over value, stay-at-home over going-out, big-over-small. And so today's mild rally led by the have-not areas of the market is probably best seen as a pretty mechanical mean-reversion move after more than a month when the cyclical/financial parts of the market have retrenched and the mega-cap growth darlings carried the indexes. The Nasdaq came into the day at its fattest premium over its 200-day average in many years. Source: FactSet Similarly, the S & P tech sector's price/sales ratio is back at 2000 extremes. Banks' price-to-book ratio is near the late-2011 lows, another time when a debt crisis loomed and Treasury yields were seen never rising again. Today's slender underperformance by Nasdaq (still up 5% in July) and 3% bounce in the banks (still down 7% this month) can't be seen as an important tidal shift. Perhaps more just a cashing of chips and a move toward more neutral positioning ahead of earnings season. In fact, a good deal of air could come out of the Nasdaq giants without remotely jeopardizing their long-term uptrend or leadership status. Treasury yields started the day pressing down toward multi-month lows but have relaxed a bit. Case-count and reimposed restrictions in various areas have the market's attention, but so do Disney World's reopening and Carnival's plan to set sail with passengers again. Right or wrong, the market sees the surging cases and uptick in fatalities from the virus as something to endure for now but should resolve one way or another within several months. Broad market hangs in fairly well, working on a 1% up week in S & P 500, despite plenty of excuses to buckle. Still looks like a summer trading range for now, albeit with the index managing to hang closer to the upper end for several days. The 50-day average crossing above the 200-day, often a confirmation of an emerging uptrend though not necessarily a short-term trigger for immediate further gains. Source: Factset AMZN flat on a day when Citi jacks its price target to a Street-high $3,550 a share is fitting, given the way the huge tech leaders have raced ahead of the analysts in general, forcing them to find rationales for catching up with higher targets. The consensus target on AMZN entering today was under $2,850, more than 10% under the stock's current level. Same is true for AAPL, MSFT, TSLA, GOOGL and FB – Street targets either at or below the share price. Does this mean sentiment is helpfully reserved toward these stocks or that the stocks have departed from their fundamental tether? Bit of both? First half of July seasonally the stronger half, so we'll see how things look next week. Earnings forecasts set a very low bar, it would seem, but so far early reporting companies have not seen stocks trade too well. Market breadth solid today. Volumes very light, as would be expected. Credit is steady. VIX ebbing a couple points into a summer weekend, all makes sense, though traders still await the sharp drop in VIX that would show a real tension release and perhaps invite more quant money rushing to boost equity exposure. Unclear if we'll get that given the headline flow.

Amazon CEO Jeff Bezos

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This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.

The prevailing trend was stretched, and everyone could see it. Tech over everything, growth over value, stay-at-home over going-out, big-over-small. And so today's mild rally led by the have-not areas of the market is probably best seen as a pretty mechanical mean-reversion move after more than a month when the cyclical/financial parts of the market have retrenched and the mega-cap growth darlings carried the indexes.