Mike Santoli's market notes: Growth stocks bounce, an unusual ETF for the upturn, the bull case

Published Wed, Nov 11 20201:21 PM EST

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. (This story is for CNBC Pro subscribers only.) A partial reversal of the big reversion trade, the big growth stocks bouncing and flattering the indexes as the majority of stocks catch their breath. Closed bond market means yields can't tick any higher. This relieves some of the psychological and systematic-trading pressure from the growth complex. The surge in value over growth, small over large, cyclical over defensive had also grown a bit extreme in the short term. A favorite way to visualize this effect is the RVRS , a fund that owns all stocks in the S & P 500 but weights them inversely to their market cap (owns the most of the smallest components and least of the biggest). Look at this burst, quite like the June move: Under the surface the market is actually less strong today, with S & P up 0.8%, than it was yesterday, with the index flat. NYSE breadth is flattish, more volume to the downside. Nothing at all worrisome, but this is how it goes in these phases – the big guys on one end of the seesaw, the majority of "typical stocks" on the other. The result is the S & P nosing back up toward the highs. Now just below the record closing peak Sept. 2 (3580)… Still working below that dramatic intraday pop-and-reversal zone from Monday morning after the Pfizer vaccine news accelerated the election-result capitulation buying by sideline sitters: The bulls are leaning heavily on a few factors in calling for a clear breakaway to the upside. First, technicals: A series of relatively rare breadth signals (four straight +1% S & P days, a cluster of sessions with 80%+ upside volume, more than 70% of stocks at a 20-day high for only the 10 th time in 60 years). All have tended to mean better-than-average gains 3/6/12 months out but often some near-term softness. Then, seasonals: November-January among the strongest periods of the year, S & P already +10% YTD could drive FOMO/Momo self-fulfilling pattern. And, liquidity/fundamentals: Resolutely accommodative Fed, super-loose financial conditions, ultra-low corporate yields even as profits turn higher and economy is poised for 2021 reopening process. All plausible, though much might already be in the market. And it's hard to shake the idea that the bulls' nerve will be tested by the near-term slowdown effects of the ongoing Covid case surge. As in prior moments of the pandemic, we could go from asking "Why doesn't the market care about the bad Covid situation?" to "Why is the market suddenly noticing the bad Covid situation?" without notice. I imagine this would mean a pullback in Treasury yields, gut check for the cyclicals trade, relative recovery by growth/stay-at-home and possibly a consolidation phase for the broad indexes. Just educated gut feel. The VIX is bleeding lower by a couple points – a mega-cap-growth-led market is a more stable one, and VIX testing summertime low area.

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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.

(This story is for CNBC Pro subscribers only.)

A partial reversal of the big reversion trade, the big growth stocks bouncing and flattering the indexes as the majority of stocks catch their breath.
Closed bond market means yields can't tick any higher. This relieves some of the psychological and systematic-trading pressure from the growth complex. The surge in value over growth, small over large, cyclical over defensive had also grown a bit extreme in the short term.