Santoli’s Friday market notes: S&P 500 snaps its downward trend and nears 4500, but will it stick?

Published Fri, Oct 15 20212:03 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics Respectable follow-through to yesterday's strong rally, as the market works to make the case that a consequential seasonal bottom was made last week after a six-week testing phase that reset investor expectations and the average stock's valuation lower. From a purely technical, tactical, seasonal perspective, things are falling into place. Strong, broad rally in the S & P 500 to break the short-term downtrend, getting back above the 50-day average, rising further above it to track for a second close there, the period after October options expiration often means the window is closing for bears to have their way. It's a more muted version of what we saw last year, when the drop in the benchmark was deeper and volatility more extreme, but the broad cadence similar. Naturally nothing is guaranteed, and skeptics are still pointing to possible logical stopping point to this rebound around 4,500, along with the chance that this week has brought a mere reprieve rather than a pardon from the inflation/Treasury-yield surge pressures. Look at the powerful rally into early October for evidence that an "all clear" can only be sounded in retrospect. Retail sales another upside economic-data surprise, adding credence to the reacceleration idea. Consumer sentiment quite weak, entirely due to inflation worries and concerns over a lack of government policy clarity, it seems. We saw similar action in 2011 when both those issues were also top of mind, but the recovery ground on. We did get a decent attitude adjustment with investor surveys and trader positioning growing more defensive, which can act as fuel for a market comeback once it gets rolling as caution turns back to FOMO. Here's the NAAIM equity exposure index, low-neutral reading. The eye-catching action is in the short-term Treasury yields, the 2-year note ripping to another 19-month high and a full Fed rate hike getting priced in by next September. This reflects the resilient growth indicators and elevated inflation risks. Just the market's best guess, which can change a lot, but here we are for now. So far, the market seeming to treat this possibility as "a hike for the right reasons" rather than "definite policy mistake," but it's early yet and much will change along the way. The Japanese yen is collapsing vs. the U.S. dollar on those better U.S. growth and rate expectations, a global risk-appetite tell, albeit one prone to getting ahead of itself with these steep short-term moves. Remarkable quarter from Goldman Sachs underscores the capital-markets bounty being served up to Wall Street's middlemen. Not surprising the stock is up only modestly after its powerful run and given investors' reluctance to pay up for last quarter's wins. But along with flush and unworried credit markets, these represent supportive bull-market forces at work. Market breadth is decent, not great, 70/30 up/down volume on NYSE and not quite 60/40 on Nasdaq. Doesn't seem like the start of a headlong bullish stampede directly back to the highs at this point, maybe more a grind. VIX buckles beneath 17, the good data and firm index price action too much for it heading into a weekend.

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, Sept. 20, 2021.

Michael Nagle | Bloomberg | Getty Images

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

Respectable follow-through to yesterday's strong rally, as the market works to make the case that a consequential seasonal bottom was made last week after a six-week testing phase that reset investor expectations and the average stock's valuation lower.

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