This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Quick reversal of Wednesday's jagged shakeout in the majority of stocks, sharp pullback in value sectors and oddly poor market breadth, which all seems to have been a response to short-term overbought conditions combined with whippy bond-market moves. Noted last night on CNBC's "Closing Bell," the action had the markings of month-end rebalancing out of equities into stocks after the S & P had outrun bond indexes by six percentage points in October. JPMorgan strategists today suggest that's now through, primary uptrend reasserting itself, earnings good enough to keep the chains moving, credit markets flashing green. The path to 4,700 for the S & P 500 and perhaps a bit beyond isn't all that complicated, whether with a hitch lower first or not. Would be a matter of a trip to the upper end of the six-month trend path. And years when the S & P has been up at least 20% through ten months, 80% of the time stocks carried higher into year-end with the median return better than 5%. Not any kind of guarantee, but everyone knows these stats now and it makes them loath to fight the rallies and quicker to latch on. The main offsets to the generally upbeat seasonal/fundamental/tactical drivers are intermittent overshoots as folks get bulled up and still-twitchy global bond markets try to figure out how much tightening might come and how soon. Quant/systematic funds are in chase mode, though from middling exposure levels. The trusty weekly NAAIM trading advisors are back to "leveraged long" above 100% stock allocations again. About two-thirds of the time in recent years, 100%+ readings here led to at least a pause or pullback soon, the other third it was in the middle of a climb. Third-quarter GDP at 2% was a "could've been worse" number, well above the Atlanta Fed tracking estimate and would've been vastly higher without the (already known and temporary) auto-production cuts. If +2% real GDP is the trough for this recovery phase when it was the central growth trend for the pre-pandemic decade, the markets can probably live with it. Global ramp in short-term yield as some central banks hustle to get tighter is easing a bit today. Today's GDP data indicate PCE inflation could fall quite a bit for September, which would be a point for the "transitory" inflation argument. Fed has a tough mix of factors to weigh, but think Powell will focus on a quick taper, then "wait and see" on rates message. Earnings beating at a pretty strong — if not as strong as second quarter — pace. And 77% of companies beating on revenues in what is a high-pressure, high nominal-growth, spring-loaded and accelerated cycle. The punishment for those that miss/guide down shows both impatience in a "peak earnings growth" moment and less willingness to underwrite super-high price-to-sales growth stories when growth eases (SNAP, TWLO, HOOD, others). Unassailable GOOGL and MSFT results seem to have traders willing to bet AAPL can wow the Street tonight. Not at all an indication of how the stock will respond to the numbers, of course. Good news for bulls is that AAPL's lagging performance has built in a bit more of a valuation cushion (based on price-earnings or free cash flow) vs the Nasdaq 100 and S & P, from very rich levels a year ago. Market breadth is strong but hardly lights-out after a few days of slippage in the average stock. Equal-weight S & P more than 1% off its intraday record high with S & P itself within a quarter-percent. Bears watching for signs of a tired/ragged tape developing. VIX easing back, still above 16, off the YTD flow at 15, probably held higher than otherwise would be by Fed meeting ahead. Weekly options expirations Friday could make things spicy given the stupendous volumes being traded in TSLA calls all week, almost an asset class unto itself at this point.
Traders work on the floor of the New York Stock Exchange (NYSE) on October 25, 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.
- Quick reversal of Wednesday's jagged shakeout in the majority of stocks, sharp pullback in value sectors and oddly poor market breadth, which all seems to have been a response to short-term overbought conditions combined with whippy bond-market moves.