Santoli: Big 5 tech stocks doing most of the work, as traders weigh the market's recent bounce

Published Mon, Apr 4 20221:18 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Hiding in the huge-caps again? The Big Five leaders of the Nasdaq (also the top five in the S & P 500) are running today while the bulk of the market idles. This is partly a catch-up move ( Nasdaq 100 is twice as far from its high as the S & P 500 is), partly a response to Elon Musk's goosing Twitter with his 9.2% stake and partly the old, normal rotational energy of the market restored as the macro scare dissipates a bit. It's netting out to a fairly modest, low-drama lift to the S & P 500, which is edging back toward the February highs — and the level from which the quarter-end mechanical spill occurred last Thursday. Source: FactSet The broad debate comes down to whether the recent rapid rebound is evidence that the market has largely metabolized the known threats over the course of the 13% correction, along with the public wailing about Fed aggressiveness, inverted yield curves and slowdown risks. We know for sure it was a psychological and positioning shock, a deeply defensive and worried professional investor class hunkered down near the lows that was not positioned for such a bounce. There could well be more of this adjustment – or "re-risking" — to go before it's played out. Recent defensive-sector leadership and various models showing some downside risk to corporate earnings estimates given receding goods demand, manufacturing PMI gauges and consumer sentiment are the cautious inputs. For now, earnings forecasts are hanging tough; we'll see how they survive reporting season. The market's forward P/E has retreated from the multidecade highs reached several months ago, but those are just back to pre-Covid heights. Buybacks, the predictability of mega-cap tech profits and negative real yields are doing plenty of work to support the bull case from here. Source: Wolfe Research The main reason Musk was able to amass a 9%-plus stake as relatively cheaply as he has is the long-term stagnation of Twitter's valuation. The chart below shows the stock's performance is since its first post-IPO trade in late 2013 relative to the Global X Social Media ETF (SOCL) and Meta . Twitter has long been more of an asset-value story, the indispensable venue where the global real-time conversation occurs with flimsy ad-intensity and relatively poor monetization of the audience. The red circle is the stock popping on Salesforce's reported interest in buying TWTR. Activists have come in since, and it's worth asking if the Musk stake — and whatever plans he might have to influence the company — could put it in play for other potential investors/buyers (assuming TWTR management wants a Plan B). Source: FactSet The jolt of energy in long-disappointing tech platform shares has also carried over to a bid in humbled hypergrowth names, for today at least. Ark Innovation , sure, but also the broader cloud-software group. Still in the zone buying is a salvage operation, and the charts all have massive overhead challenges, but the group has become less of a drag on risk appetites. Market breadth is so-so, with the biggest five stocks doing most of the work to lift the S & P 500. NYSE up/down volume is about even. Nasdaq breadth is a better. Credit and the VIX are holding steady in their somewhat more relaxed state; no incremental signal there today. My weekend column elaborates on all of the above .

Traders on the floor of the NYSE, March 29, 2022.

Source: NYSE

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