This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Markets are acting triggered – by the 10-year Treasury racing above 3% and the counterpart German bund surpassing 1% for the first time in almost eight years, by the prospect of another 100 basis points of Federal Reserve tightening over the next three months and, perhaps, by urgent liquidation-type selling in Big Tech, which were some of the most concentrated holdings of hedge funds sitting on huge losses. This is all surmise and inference, of course, to explain the latest trapdoor move in a treacherous market year, in which rallies are suspect, volatility feeds on itself in the short-term and investor conviction levels are low. Yes, there's often a next-day rethink of a Fed decision. Sure, Wednesday's rally appeared a bit exaggerated , with signs of a squeeze-and-chase that caught traders offsides. But nothing inherently suggested all those gains would be unwound within 20 hours. It all sounds pretty dramatic. Yet so far, the entirety of today's decline is occurring well within the range of the past three days, right near the lows of what can charitably be called, for now, a choppy trading range but one that's growing a bit heavy. The last three S & P 500 bounce attempts stopped cold at 4,300. The Wednesday rally showed a few things: -Stocks were tightly clenched and oversold assuming the Fed wanted financial conditions to keep tightening -The market had – in the short term – outrun the Fed's hawkishness, as shown by the rip after Powell took 75-basis-point hikes off the table for now -The best bounces this year started as Fed meetings ended, in late January and mid-March, so traders figure the play might work again Many observers are pointing out the most violent rallies happen in bearish tapes, which is generally true. Arguably, sentiment and positioning remain depressed enough that stocks can keep burning off the pessimism for a while in support of further bounces. Upside hurdles remain near 4,300; 4,400 and 4,600 – even if the index finds traction nearby soon. Valuation at this week's lows again got down to 18x forward earnings – same place it bottomed twice before this year. No magic to that level but so far buyers have shown interest there. But is an 18x S & P compelling when risk-free paper is yielding 3.1% and safe-ish corporate debt offers closer to 5%? Equal-weighted S & P is less than 10% off its high versus almost 14% for the market-cap-weighted S & P, shows this has largely been about mega-cap growth "de-rating." E-commerce underperforming even muted expectations has digital-transformation believers doubting this group. A give-up phase in growth/tech, perhaps well underway, could be a cleansing event. Much talk of forced hedge-fund selling, which if nothing breaks in the capital markets can also be part of a capitulation process. Macro/market outlook from here hinges on whether the "peak inflation" storyline gains credence as the data come in. Yield curve steepening and credit spreads remaining under control implies the market still thinks a "soft landing" is plausible if not a forgone conclusion. High-yield credit is hanging fairly tough in here. The Fed probably doesn't mind stocks having second thoughts if it's not causing much stress in the corporate-finance channels. Breadth is brutally bad and could end up in one of those "so bad it's good" places, with 90%+ NYSE volume to the downside, often a level that traders look for to signify a good, decisive flush. VIX jumps back to 30 but well short of recent high near 36. We've been at these S & P 500 levels so recently it's hard to shock the volatility markets, at least so far.
Traders on the floor of the NYSE, May 4, 2022.
This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.