Santoli’s Monday market notes: Cyclicals, banks rally, but will the early-month strength trend hold?

Published Mon, May 3 20211:08 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Brisk rally in cyclicals and heaviness in tech/growth translates into a mild bounce for the S & P 500 not quite recouping Friday's drop. Equal-weight consumer discretionary, industrials and homebuilder stocks all up more than 1%, with crashing Covid counts and seasonal flush of spending bolstering sentiment on the "spend it now" economy. High-concept/high-valuation tech under pressure (cloud stocks off 2%, solar off 1.4%). Berkshire Hathaway shares up 1.8% at a new high, perhaps after Warren and Charlie reminded the world their conglomerate is a huge play on a fast-nominal-growth/higher-yield environment (rails, energy, housing, insurance). The pattern so far this year has been early-month strength in stocks, followed by a stall or some sloppiness after monthly options expiration. We'll see if this continues, though arguably this pattern has become too well-understood to keep working perfectly. Yields down, yet it's a banks-and-cyclicals over tech tape. Things seem a bit noisy/unsettled in terms of rotational patterns to start the week. ISM data supports the idea the industrial sector saw peak rate of acceleration in March but continues to hum pretty well. Shortages, disorderly price spikes in commodities and big-ticket goods are conspicuous and not wholly positive if they last. But right now adding more to earnings forecasts than they are detracting from investor comfort or P/E multiples. More weakness in semis, needs to be watched as a risk-appetite/macro "tell." The group is more than 7% off its high amid tons of shortage talk. Production frictions and a ton of capex hitting the industry are complicating factors. Market breadth is mixed – strong on NYSE, soft on Nasdaq. VIX coming off a bit in a Monday slippage, though remains a notch higher than it was 2+ weeks ago when the S & P was slightly lower. On alert for a divergence here, pending.

Traders on the floor of the New York Stock Exchange.

Source: NYSE

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