Santoli: After key inflation report, the market enters a neutral spot in time for big earnings

Published Wed, Jan 12 20221:19 PM EST

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. A muddled market response to an expectedly hot inflation report as traders contend with a stubborn old S & P 500 index level after it ran higher by 3.5% from midday Monday into this morning's high. The most oversold groups had their reflex bounces ( ARKK , KWEB , small-cap growth, IPOs) and the beneficiaries of the urgent rotation into cyclical/value areas (energy and banks) are consolidating hefty gains. Crude oil up again at multi-month highs, but the energy stocks acting a bit tired. Leaves us with a bit of a tactical trader's tape for now, blipping around just under the record highs. The level that seems to matter is 4,700 (and just above), where the S & P was capped for November and much of December. The bond market barely reacted to the 7% year-over-year CPI print, yields continuing their pause just below the early-week two-year highs, implying the fixed-income complex has pretty well priced in the current implications of the Fed's vigilant, but not strident, stance on countering inflation. As much as the market is relieved the CPI report is now behind us, and the monthly price gains are declining, and the composition wasn't incrementally alarming (services inflation calmer, etc.), it leaves investors on the vigil for statistical base effects and normalization of consumption patterns to prove in coming months that CPI will start to recede. The market seems in a pretty neutral spot ahead of earnings season. Near record highs but at levels first hit two months ago. MS and GS downside leaders today after mid-size investment bank Jefferies missed and reported a tough trading backdrop in the fourth quarter. JEF shares off 10%. Long-term positioning/sentiment gauges among professionals seems muted, which is a plus, yet short-term traders got pretty happy with the call-option buying on yesterday's rally and retail investors continue to carry high equity exposures. Market breadth is evenly split after a strong start, the opening pop in big growth names was pretty grabby. MSFT up 1.6% on the day but 1% below its high. Small caps struggling. VIX back under 18. This simply reflected more stable footing after the recent spill, though it's had a hard time relaxing lower the past couple months. Inherently wide band of possible outcomes ahead with step-down in GDP/earnings growth rates, all Fed meetings "live," and Covid snags always a possibility, etc.

Traders work on the floor of the New York Stock Exchange (NYSE) January 12, 2022.

Brendan McDermid | Reuters

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

A muddled market response to an expectedly hot inflation report as traders contend with a stubborn old S&P 500 index level after it ran higher by 3.5% from midday Monday into this morning's high.