Santoli’s Tuesday market notes: Stocks wobble amid Big Tech earnings, key Fed meeting

Published Tue, Jul 27 20211:43 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Too much pressure on the Nasdaq giants for the typical rotational dance to keep the indexes fully supported, even as the typical stock holds up better than the S & P 500, unlike yesterday's top-heavy index rally. Asked yesterday how far Chinese tech such as BABA could be stretched vs. the big Nasdaq names without pulling FAANMG lower, it seems we got some recoil today. Not so much because China is a threat to U.S. tech, more just overlap in ownership means collapse in China tech generates portfolio stress and an excuse to lighten up on overbought Nasdaq giants. Here's a picture of the rotational effort, industrials and banks rallying as Nasdaq 100 selloff deepens. Only a partial offset. The S & P 500 had been absorbing the overnight weakness each day, tried again this morning but succumbed to what, broadly speaking, seems like a basic pullback/digestion. Most breakout attempts to a new high eventually are tested with a trip to the former high, as noted yesterday. Also plenty of traders noting a gap on the chart from just under today's low at 4,369 on the S & P that might be expected to be "closed" as a minor test (circled). This wobble, though is coming quickly after last week's strong bounce. And the pre-Fed hesitancy, stormy seasonal window, Chinese yuan drop, CDC mask reversal and sell-the-news earnings reflex are probably making this slippage feel slightly more tenuous. Defensive tone, staples and utilities now outperforming S & P so far this month. The nagging imperfections accompanying the recent phase of the market's advance remain: Unimpressive breadth (today will be the ninth session of the past 14 when new 52-week lows on Nasdaq outnumber new highs), some signs of buyer's fatigue (fund flows slower, margin debt rate-of-change dropped). Bank of America technical analyst Steven Suttmeier today noted these issues, seasonal forces and other signs of upside "exhaustion" as reasons investors should be raising some cash into the 4,400s on the S & P 500. Earnings in general blowing away published numbers, but more noise in the details. Industrial margin issues, UPS muddled guidance. Earnings season has not been when this market has done most of its upside work: too many opposing currents. Today's FAANMG pullback might set the stocks up a bit better for Apple , Alphabet , Microsoft and Visa numbers tonight. The stunning, automatic profitability of these companies gets spotlighted every three months, it's just a matter of what the market is willing to pay for already-expensive but highly reliable profit streams at a given time. Beyond the trading churn and delta noise, the earnings bonanza points out that we are in an age of abundance and no hard choices in Corporate America. Directionally, Fed taper and decelerating GDP growth and slightly less loose financial conditions should make the market more selective and perhaps compress the overall price-earnings multiple. But with real yields steeply negative and so much pent-up consumer and corporate spending power it's hard to turn too negative. It makes the S & P's 21.5x forward multiple seem not all that unreasonable. Market breadth is weak, but not a washout. About 1:3 up:down volume. Still, weeks of poor breadth have meant fewer than half of all stocks are in a short-term uptrend. Repair is probably needed if the market is to regroup and have a durable ride higher any time soon. Treasury yields pressured by the equity drop/delta chatter (even if the U.K., India and Netherlands case curves are rolling over hard). Credit is a bit squishy, spreads drifting wider. Marginal money easing back from risk, for a day at least. VIX is perking above 20. Probably agitated by Fed vigil, definitely complicating the longer-term downtrend in volatility. Still nothing like real fear yet, nor should one expect it on a 1% dip from a record high.

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.

Too much pressure on the Nasdaq giants for the typical rotational dance to keep the indexes fully supported, even as the typical stock holds up better than the S&P 500, unlike yesterday's top-heavy index rally.