Santoli’s Thursday market notes: Stocks retreat amid Fed summit, but tapering doesn’t have to be scary

Published Thu, Aug 26 20212:15 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Some hesitation at the highs, modest giveback of a small slice of the week's upward drift, as the market idles ahead of top Fed policy voices making themselves heard Friday. S & P 500 touching 4,500 and settling back a bit, up 1% for the week and 2% for the month. The 4,500 level is +20% for the year, +100% in 17 months from the March 2020 low, triple the 1,500 mark where it peaked both in 2000 and 2013, and the index has now returned more since the March 2009 bottom than it did over the same time span from the 1987 crash to the tech-bubble peak in March 2000. So, yes, the market has come a good long way no matter how it's sliced. Yet the tape isn't acting particularly peak-y. Long monthly win streaks such as the one we're in and clusters of new record highs like we've seen this year have generally come in the middle part of a longer uptrend. A dollar invested today into the S & P buys more in expected profits than it did eight months ago, even at a price 20% higher. Investment-grade debt yields 2%, undemanding on anyone's scale. Buybacks are ramping. All suggests a decent floor under the market even if seasonal forces, iffy momentum and Fed noise cause some wobbling. Have expectations that Jay Powell will sound patient and dovish tomorrow now been priced into markets? Quite possibly. Taper itself need not be scary for stocks – it wasn't in 2013-2014 – but it does mark a decided turn to mid-cycle conditions (decelerating growth, past-peak earnings momentum, Fed normalizing policy). The bull case has necessarily turned from "boomtimes and a hot-running corporate sector" to "elongated sustainable expansion." Helps explain the recent rediscovery of "quality" as an investment factor. Quality vs. high-beta (cyclical, riskier stocks) since February: The rebound in cyclical groups is pausing and spilling back a bit today, with chain retail weak (ex-WSM) and reflation plays pulling back. The beneficial combination this week has been a revival of the reopening plays without the usual pullback in mega-cap growth, though it's a delicate dance. Nasdaq-100 looking a bit tired. Morning weakness coincided with the reports of the Kabul bombing, though hard to draw much of direct line from Afghanistan to the most market-relevant factors. Messy ground conditions and thwarted U.S. foreign policy has collided before with an imperturbable tape bathed in ample liquidity and a sturdy corporate sector, in 2013 with the Syria red line. Market breadth soft, a reversal of yesterday, but doesn't speak to urgent selling at all. VIX is perky back above 18. Powell speech, an instinct to lock in gains through hedges and the unpleasant geopolitical headlines are factors.

A trader works on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., August 5, 2021.

Andrew Kelly | Reuters

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

Some hesitation at the highs, modest giveback of a small slice of the week's upward drift, as the market idles ahead of top Fed policy voices making themselves heard Friday.