Santoli’s Friday market notes: The S&P 500’s advance narrows amid muted reactions to earnings

Published Fri, Jul 30 20211:53 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Today's action captures the state of the markets pretty well in several respects. A persistent but uneven rally. We're finishing the sixth straight-up month for the S & P 500, something that's only occurred from Feb-Aug in three prior years (strong mid bull-market years: 1954, 1964 and 1995). Yet the advance has narrowed. Some momentum signals are suggesting fatigue, and reactions to earnings suggests much fundamental good news is priced in. Dip-buying reflex remains strong. The 9:30 open again serving as a moment for indexes to firm up a bit. Confidence in the liquidity/easy financial conditions and longer – if not stronger – economic recovery period reinforce this impulse. Slowdown threat of Covid delta variant spread being viewed by the market right now as more a moderation of growth and an excuse for the Fed to lean more dovish than expected just a month ago. Seasonal weakness can't be brushed off come August. The month is up about half the time, but risk/reward historically skews to the downside on average. Equal-weight Russell 1000 now running even with S & P 500 for the year, after building up a huge lead. Small caps outperforming this week, and there has been a bit of a revival of the reflation sectors. Another "immaculate rotation" away from mega-cap tech just in time? Can this work if earnings-forecast revisions are stalling out, as it's starting to appear? The broad market has been able to hold it together this year at times when AAPL and AMZN (together 10%+ of the S & P 500) were drags on the tape. It means doing it the hard way. It takes more energy in cyclical groups to make it work, but not impossible. Positioning/sentiment is moderate, neutral, confused. Bank of America Bull/Bear, NAAIM Exposure Index, AAII retail survey, tepid uptake of Robinhood IPO all suggest this. Good to have expectations in check. Market breadth today is negative but not a washout. Defensive/quality sectors definitely getting a bid (health care, staples). Treasury yields soggy, today's PCE price data supportive of the "transitory inflation surge" premise. VIX has a slight bid, accounting for usual Friday drag. Is it basing on the chart? August is a month with definite upside bias to volatility, through history (though not without exception.

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.