Santoli’s Monday market notes: The market is quiet ahead of big expectations for Tesla earnings

Published Mon, Apr 26 20211:06 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Stocks continue to sleepwalk uphill, with signs of indecision below the surface failing to restrain the market's upward bias. A cautious turn toward the defensive sectors in recent weeks – bonds, low-volatility stocks, healthcare – has for now been the market's way of protecting the lead built up by the offense (cyclicals, banks, small-caps) in the first 10 weeks of the year. The bull case is what's in front of everyone's eyes; the bear thesis is about what-ifs for now. Yes, the market is quiet and a bit overbought, but they say never short a dull tape and don't anticipate a reversal in the indexes. Pretty remarkably, the S & P 500 has essentially resumed the trajectory from 2019 into 2020, making the Covid crash appear like the fluke blow from the blind side that it was for many investors at the time. Even here, near the top of the uptrend range, it should surprise no one if things flatten/fade before too long. Stock-price responses to earnings beats have again been blah. Investors are openly bullish and pretty fully invested. Seasonal forces start to turn a bit less favorable soon. The longer-term risk/reward profile of a market up 90% and passing "peak improvement" in profits and GDP has surely turned more mixed vs. most of the past year. But those things alone don't halt a market bolstered by a supportive Fed, generous credit markets and rising earnings forecasts. One area where exuberance is lacking is the sell side at the moment. Strategists' average S & P target is a few percent below the current level and previously bullish firms (JPMorgan, Goldman) have been working to tamp down investor expectations for the coming months. This is arguably a net positive for stocks to see such an outbreak of sobriety. On the other hand, it speaks to the lack of a compelling valuation/catalyst set-up for significant near-term upside. Harder to quantify is the effect of the sudden stylistic and sector rotations. While healthy for the overall market, they make it tough for investors to catch leadership shifts and to "feel smart" for having figured out the market. Lack of investor certainty about the wisdom of their stance is also probably good to keep pure euphoria at bay. Loosening overseas travel restrictions and possible lifting of outdoor mask mandates are a reminder of domestic Covid/reopening momentum. Meanwhile, stubborn case growth in India and lagging vaccine uptake elsewhere moderate the global economic acceleration, but also ensure investors can continue to anticipate improvement and prolonged monetary support. Expectations of good things to come are often better for markets than their arrival. Talking down of infrastructure package size by legislators isn't a game changer for the markets, but if it also comes with diminished chance of sharp tax hikes probably a wash. Can't escape the fact that we've seen peak fiscal thrust, and we'll be soon looking ahead at "tough comparisons" and "fiscal drag" for 2022. Tesla results almost pure "eye of the beholder" exercise. Estimates for the quarter are up a bunch since September. But the story has to be about massive things to come, not beating delivery estimates by a few thousand cars. The stock has consolidated reasonably well above recent lows but by no means seems ready to make a run to the January highs. Market breadth is sturdy today, more than 2:1 advancers: decliners and almost no new 52-week lows. Volume remains tepid, likely a hesitation before some big earnings and the Fed. VIX is a bit bouncy given the calm, green tape. Part is a "Monday effect" and part probably the fact that stock correlations have picked up lately, which can lead to wider index swings, but within the VIX's recent 16-19 range no real signal to be had.

A trader works on the floor of the New York Stock Exchange.

NYSE

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

Stocks continue to sleepwalk uphill, with signs of indecision below the surface failing to restrain the market's upward bias. A cautious turn toward the defensive sectors in recent weeks – bonds, low-volatility stocks, healthcare – has for now been the market's way of protecting the lead built up by the offense (cyclicals, banks, small-caps) in the first 10 weeks of the year.