Santoli’s Monday market notes: Megacap names that took stocks higher in the summer are dragging in the fall

Published Mon, Oct 4 20211:25 PM EDTUpdated Mon, Oct 4 20211:49 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. The reset continues with the jagged, anxious harvesting of gains from the biggest growth stocks pressuring the S & P to lower lows for this pullback, while most stocks churn more sideways than down. Fragile technical conditions in the benchmark indexes are also part of the story, with intraday rallies failing at "predictable" spots (the 50- and 100-day averages, in turn) and the first 5%+ pullback in 11 months widening out the bands of the trading range. It's unmistakably a short-term downtrend not in the S & P 500, though again mostly driven by the mega-cap group that pulled the index higher through July/August. Here's the Nasdaq 100 vs the equal-weighted large-cap universe of stocks. It's not that the typical stock is levitating but had less air under it entering September and has not buckled from the highs to the same degree. Even today, EQAL is off 0.4% while NDX down 2.3%. Is mega-cap surrender the way corrective periods ultimately end, or will it first create a more indiscriminate liquidation? Among the prior longest streaks without a 5% pullback in market history, five out of 11 developed into at least a 10% drop, with most falling at least 8%, but none of them ended at a definitive peak of a bull market. Narrative dissonance remains an issue: Covid cases are sliding fast, and reopening dynamics are kicking back in, yet third-quarter forecasts still slipping. DC policy frictions keep a big "What if?" worry out there on debt ceiling, etc. Nearing a saturation point for supply-chain concerns? Hard to say. There's now a case to be made that universal obsession with these issues, plus the chance that we saw a huge pull-forward of goods demand that will give way to a shift toward services into 2022, means supply chain might be peaking as a market swing factor. Perhaps too hopeful, but for market purposes this doesn't have to be true, just plausible for a while. Breadth is more mixed than nasty. NYSE is 45%/55% up/down volume, with even Nasdaq not much worse than 30%/70%. Pressure but not comprehensive selling urgency. VIX up 2+ points is both the post-weekend wake-up effect and continued index instability. Still operating well below the late-September highs, though. Anxious not panicky, for better and worse.

Traders work on the floor of the New York Stock Exchange (NYSE) on September 30, 2021 in New York City.

Spencer Platt | Getty Images

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

The reset continues with the jagged, anxious harvesting of gains from the biggest growth stocks pressuring the S&P to lower lows for this pullback, while most stocks churn more sideways than down.