It feels like the market will need a fresh macro shock before the June lows are tested

Published Fri, Sep 9 20221:27 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Stocks continue to feed off accumulated negative investor sentiment, a lack of adverse corporate news from conferences and a bit of relief from macro headwinds in the bond and currency markets. The net effect is a rally in the S & P 500 right up to the bottom of its range on "Jackson Hole Friday," just above the midpoint of what is really a grinding four-month trading range. It seems like the market has again pulled to a more neutral spot ahead of Tuesday's consequential CPI release. Market resilience reflects the real-time economic indicators are holding up OK (card spending, New York Federal Reserve weekly activity index, ISM Services), improving leading inflation clues and a hawkish but "more of the same" message from a barrage of Fed speakers — who after today will enter the pre-meeting blackout period. The European Central Bank rate hike and basic consolidation have the U.S. dollar easing, though the 2-year note yield is back above 3.5% after Fed jawboning this morning about needing rates to restrict demand. It continues to seem like it would take a major fresh macro shock for stocks to break down to/through the June lows any time soon, with oversold positioning/flow/sentiment extremes developing in the past week with the S & P well above the June trough levels. To a degree, the tape has been stress-tested with continued Fed "tough love," declining (but not crashing) earnings forecasts and the usual "scary September" talk. That said, the simplistic take that the Fed is tightening hard into a slowdown, the global economy is struggling in a more disorderly way, the overall market trend is lower and stocks aren't cheap probably caps the indexes from here — with post-September expiration phase starting later in the month often tricky, ahead of what tends to be relief at the end of a midterm election year. Some nuance on the valuation front – the excesses remain clustered in the sliver of mostly large, mostly growth-y S & P stocks, with the lower end of the index and even the median at less-demanding valuations. This relates to why the equal-weight S & P 500 has consistently held up better than the standard market-cap-weighted version this year. Market breadth is very strong, tracking for 90% upside volume and more NYSE new highs than lows. The VIX is sliding under 23, confirming the stability of the trading range and ratifying the relief rally, even if it says nothing about how much higher it can carry.

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