Challenges to prevailing, bullish beliefs
(These are the market notes on today’s action by Mike Santoli, CNBC’s Senior Markets Commentator. See today’s video update from Mike above.) A new month brings fresh challenges to a few of the prevailing, bullish stock-market beliefs. The latest leg of the market’s near-five-month surge has been based in large part on expectations for “good news” Fed rate cuts into a steady economy moving beyond the initial tariff shock, keeping a lid on bond yields and fostering a reacceleration in consumer activity alongside a durable AI -investment boom. None of this has been disproved, of course. But levitating Treasury yields after a court ruled many of the administration’s tariffs were imposed illegally has stoked some questioning of the benign equilibrium among policy, the economy and markets, prompting a wobble in equity indexes Tuesday. Meantime the post-Nvidia-earnings collective rethink of the trajectory, profitability and durability of the AI-capex boom has Nvidia shares testing two-month support and Microsoft and Meta Platforms undergoing 8%-plus corrections from their recent highs. The dip-buying impulse hasn’t gone away, though, with traders cutting the S & P 500 losses almost in half from earlier lows. Might tactical players recall that August also started with a quick drop (on tariffs and a bad jobs report), which testes S & P 500 support from a couple weeks earlier and actually put in the low for the entire month of August? Treasury yields have also failed to break containment. The 30-year came within an eyelash of 5%, its third before buyers pounced. And the 10-year is firmly within a longstanding range. Worth noting the uptick in yields is a global phenomenon, with issues of fiscal aggression amid sticky inflation and central-bank easing causing investors to demand higher risk premia on government debt. Is this the flipside of a higher nominal-growth metabolism across the world? Worth noting is that consumer cyclicals continue to outperform, suggesting the equity market believes the economy is OK in the U.S. Banks are pulling back but have also been leaders. Meantime, consumer staples can’t get off the mat, with the market’s adverse response to Kraft Heinz’s planned corporate split the latest drag. Questions for the remainder of the week: What will qualify as a “good” monthly jobs report on Friday? Does the market want another soft print to seal the deal for a September rate cut? JOLTS report Wednesday will preview the number, with a reading on just how loose the labor market has become.
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