Mike Santoli’s market notes: Stock valuations are elevated, but profit growth keeps pace with prices

Published Fri, Apr 16 20211:02 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. A gentle extension of the persistent rally into an options-expiration Friday, as the market explores the borderlands between "strong" and "too strong." The big picture: This is a bull market, a broad and sturdy one. The macro outlook is as strong as most can remember. Financial conditions are loose, and the Fed is fully intending and promising to err on the side of easier for longer. Valuations are elevated, but profit growth is fully keeping pace with share prices. Countering these abundant attributes, in the immediate term, is a market continuing to stretch further into overbought territory, a pattern of late-month wobbles since the start of 2021 after options expirations, a subtle shift toward more defensive stocks and sentiment getting complacent. The S & P 500 is roughly as far above its 200-day average as it was at the mini-January high and the more consequential Sept. 2 peak — yet it was also around these levels for much of November/December to no ill effect. The percentage of S & P 500 stocks also above their 200-day average is at an extreme seen twice in the last 20 years, in early 2004 and September 2009. Both were relatively early in multi-year bear markets, but from that point on they hit some significant chop and made little net progress over the subsequent months. Just one data item, but it helps to be aware of past rhythms. Bank stocks as a group flattish on a week with generally quite strong results, shows a relatively high bar plus the standard questions about how much can be extrapolated. Staples, healthcare and other "quality" groups continue to perk up. Maybe it's just the market rebalancing after such extreme cyclical/value outperformance, but worth noting as a potential sign that the market is downshifting a bit. Also watching Transports, a super-strong group with good implications for the domestic economy and reflation, the group flattening out just a touch in some pretty thin air. The speculative/hypergrowth stuff all seems back on its heels still. A plus that the froth has been skimmed away, or a sign that risk-seeking money isn't pouring into the market as a key driver of stocks? Bit of both, probably. Market breadth is so-so, well-mixed on the day and the week. Equal-weighted S & P has about kept pace with the main index this week, so no serious narrowing of the market, though some are flagging a peak in market-wide upside participation a few weeks ago. VIX giving way to the downside, as it should with a quiet market at highs. One think to note is the VVIX — basically the VIX of the VIX, based on prices of VIX options — which has perked up in the past several days even as VIX makes further lows VVIX also diverged like this last August and in February, as the S & P was about either to stall or hit a bit of turbulence. Not always a bad omen when it climbs, but another straw in the wind to track.

Traders on the floor of the New York Stock Exchange.

Source: The New York Stock Exchange

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

A gentle extension of the persistent rally into an options-expiration Friday, as the market explores the borderlands between "strong" and "too strong."