Santoli: Controlled demolition of the more speculative parts of the market continues

Published Wed, Jan 5 20221:50 PM EST

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. More of the same: Migration from expensive predictability to cheaper cyclicality, from crowded big index components to comparatively under-owned smaller stocks, benefiting the median stock over the marquee benchmarks. There's still a thread of deferred profit-taking underway, with MSFT down 4.3% in the first three days of the year after a +53% 2021, Intel up 7.5% following a year as dead money. Banks went sideways for 9+ months through the end of 2021 and are now up 5-6% in under 16 trading hours in 2022. All a mix of mean-reversion and macro-rethinking effects. Flows into Nasdaq 100-type funds were heavy last quarter and that often means a group needs to cool off. An accumulation of signs and expectations of a sharp, brief winter Covid wave that does little to restrain a spring-loaded economy is repricing stocks and bonds for reacceleration and a Fed on track to do some rate-hiking. Net effect on the S & P 500 is to hold it steady for several days just under 4800. Meantime the equal-weighted version of the S & P with a pretty decisive breakout, answering the many calls much of last year that the market was too narrowly dependent on a handful of oligopolistic mega-cap tech platform names. The action is pretty healthy overall and makes a lot of sense based on the recent labor-market data and action in commodities. One nagging concern is that it feels a bit too close to the professional consensus predictions for the year: Stock-picker's market, muted index returns, favouring financials/energy with Treasury yields higher. The crowd is of course not always wrong but would be surprising if the sector- and style-leadership script for the year is already written. The Dow/Nasdaq interplay shows the to-and-fro of cyclicals vs defensive growth. The Dow spent almost half of last year running ahead of the Nas Composite, ceded ground in the taper/omicron late-year phase and now pulling ahead again, But point to point a similar ride. The controlled demolition of the more speculative precincts of the market - those most reliant on hype and hot-money momentum - continues apace, somewhat surprisingly given January's penchant for comforting the afflicted stocks of the prior month. Cloud-software, fintech, ARKK, sports-betting, the meme-scape keep bleeding lower and one would expect would look pretty washed out soon, at least enough for a good bounce. Yet without valuation support, with real-economy companies and projects offering good visible returns and the with narratives of inevitable growth and eventual dominance broken, a tough area to play. It's been almost a mini-2000-20001 tech meltdown, operating within an otherwise sturdy equity market. Super-strong ADP private-payrolls report. Encouraging but not the most reliable bellwether of official jobs numbers... Treasury yields up but only slightly ahead of Fed minutes this afternoon. Market breadth is mixed, decently positive on NYSE but solidly negative on Nasdaq. Credit markets hang in there fine, off best-ever conditions a few months ago but still very accommodating. VIX idling in the 16s, benign but not rushing lower.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, on Monday, Jan. 3, 2022.

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.