Santoli: Don’t ignore the weakness in transports, semiconductors and homebuilders

Published Wed, Apr 6 202212:55 PM EDTUpdated Wed, Apr 6 20221:08 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Bonds have been getting repriced too quickly for stock investors to take the moves fully in stride, though so far in equities it still looks like a pullback following a powerful rally rather than a new disorderly sell-off. The line is fine between these two scenarios and conviction levels are low, but for now this is the read. Follow-through selling in Treasurys overnight following Federal Reserve Governor Lael Brainard's aggressive-seeming talk about tightening and Fed balance-sheet runoff added a push to the downside. However, ahead of Fed minutes yields have eased back and stocks are firming a bit. The S & P 500 probably needs to hold above 4,400 (some say 4,430-ish also matters) to keep the look of a reliable bottom and recovery phase underway. So call it 1% to 2% of a downside cushion to avoid some harder questions about the low end of this near-three-month range. The Nasdaq is a more impaired version of this chart, well below its October low again. Virtually flat over one year. The ongoing relative weakness in important economically cyclical groups can't be ignored or dismissed: It's all the talk now. The market isn't flawlessly prescient, but this is a slowdown/consumer stress message, S & P 500 versus transports, semis, consumer cyclical and homebuilders. Such late-cycle action keeps alive the potential for a late-2018 replay scenario, a favorite of bearish traders lately. This is when tape leadership turned decidedly defensive, yields rose to new highs and the impression built up that the Fed was too dogmatically tight. Tricky part here is inflation isn't opening a window yet for the Fed to signal a rethink of aggressive tightening plans. Especially now that inflation-fighting is the new populist/worker-friendly policy and in a sense near-term tightening can be viewed as longer-term easing (via suppressing inflation thus possibly lengthening the cycle). We still are feeding off a very strong and statistically relevant momentum push off the recent lows, earnings forecasts are patchy, but in aggregate they are holding up. Credit markets are on guard but not sending a shrill message of impending economic hardship. Yes, mixed messages. The most aggressive, hardest-hit stuff with flimsiest fundamental support is giving up lots of their strong bounces, very hard-to-trust group. Names such as SQ , PLTR , DOCU , ROKU . Very similar, stressed EKG charts. Market breadth is weak but not a washout, like 70/30 down:up volume. Equal-weighted S & P outperforming by a lot, down a mere two-thirds of a percent on the day. VIX working on another little uptrend, and definitely some Fed-minutes premium is built in. The volatility markets are withholding any kind of all-clear signal, but they are not yet saying we're back to high-stress melt mode in stocks.

Traders on the floor of the NYSE, March 1, 2022.

Source: NYSE

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