A key threshold awaits the S&P 500, which could test the staying power of this October rally

Published Mon, Oct 31 20221:32 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Stocks meander with the S & P 500 narrowly lower, still feeding off benign seasonal patterns, a stable if stalling economy and still-cautious positioning but having run a good long way in a brief period. The particulars of this rally off the Oct. 13 bear-market low are winning some credit from the arbiters of such things, with an uncommonly broad advance off a deeply oversold reading and fewer stocks making new lows in October versus June. The tape's refusal to buckle on bad news (the consumer price index report, megacap tech earnings blowups, etc.) and resilience of the average stock" versus the top-heavy indexes are reassuring. No escape velocity has been attained yet. The S & P 500 still has a ways to go before the next appreciable test – the 10-month downtrend line and 200-day average – where the prior broad and impressive rally from mid-June to mid-August stopped flat. The market approaches another interest rate policy decision not looking to fight the Federal Reserve, but hopeful that common ground has emerged between the view of investors and the central bank on the destination and the general time of arrival. The bond market has priced in the expected 0.75 percentage point hike on Wednesday and more from there to get the Fed funds rate to about 5% in a few months. This doesn't mean stocks have absorbed that and all the implications of it, of course, or whether that will prove an overtightening that decisively trips the economy into recession. Yet again, the market is trying to make its peace with a new higher threshold of rates that few foresaw coming even six months ago. Led by the Big Tech leaders that still carried a high valuation premium for supposed predictability, the adverse reactions to companies missing sales and earnings forecasts have been ruthless. Profit forecasts continue to drop though still at a measured pace for the fourth quarter, with 2023 an unknown. The absolute level of earnings is quite high, consumer/commercial balance sheets are far healthier than ahead of prior recessions and decent nominal GDP growth all offer some hope that the earnings impact might not be all that dire. Market breadth is pretty evenly split, though NYSE has more new highs than new lows, another sign of reduced selling intensity in the rank-and-file stocks. VIX up half a point in a typical Monday rebuild of options premium. It's been a gradual downslope off the recent highs, with nodes of volatility hedging still active around the Fed meeting, Friday jobs report and the next CPI release. Weekend column gets into the ins and outs of seasonal factors, which fail just often enough for people to doubt them. This seems to make them "work" more often than they probably should.