Earnings shocks aren't blowing up sectors. Here are verdicts investors might draw

Published Thu, Aug 25 20221:20 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. The tape continues to act as if there's no dangerous gulf between the market's current view of the Federal Reserve's likely policy path and central bank officials' own messaging as the Jackson Hole conclave gets underway. The equity market has made some peace for the moment with 2-year Treasury yields back near 3.4%, the 10-year above 3.05%, the U.S. Dollar Index just under two-decade highs and crude back in the mid-$90s. It helps that all of them have eased back from once-threatening levels this morning. S & P 500 has bobbed back up to that 20-day average and near the 4,170 area of the early-June highs which bulls were hoping would support things until Monday's drop. No serious damage was done in this multi-day pullback following a 19% low-to-high ramp (using intraday prices). Part of Fed officials' effort so far has been to recast a possible 50 basis point September rate hike as a serious continuing attempt to tighten aggressively rather than a dovish wobble from a potential 75 basis point bump. The market seems fine with this, consistent with the idea rates will get to a plateau within months. It seems sensible to work off the premise that the June equity-market low was a good one, formidable. It was characterized by washout technical and sentiment conditions and followed by some rare "breadth thrust" readings in the rebound. There is more for the market to prove for sure, but that low likely won't go quietly and probably means severe macro shocks beyond what's known/expected would be necessary. Sentiment remains reserved if not outright pessimistic. Sell-side consensus sees a low ceiling on the S & P 500 (median target is +3% from here) and retail investors are scared and scarred. Bespoke showing one of the longest streaks underway of bears outnumbering bulls in the American Association of Individual Investors survey. A net positive if nothing else, and worth keeping in mind that bull markets begin shrouded in doubt. Earnings disappointments are company-specific and not driving whole sectors to blow up, either in cloud ( CRM ) or retail ( JWN ). Semis make another bounce attempt even after soft NVDA guidance. It's not a leadership group right now and there is plenty to prove, but it's trying. CRM has been a very expensive stock from its public debut but is now less so. For the first time ever, it has a higher forward free-cash-flow yield than MSFT , a stock that has trounced Salesforce over the past decade. One could fairly argue that both stocks remain expensive, and this merely shows Salesforce reaching a less-exciting maturity phase, but notable nonetheless. Market breadth again pretty strong: 3:1 up:down volume and small-caps/equal-weight S & P outperforming. VIX sees nothing too jolting on the horizon with Fed Chair Jerome Powell's speech within 24 hours. It's in the 22s. Stable indexes for three days are having an effect. Credit markets firmer.