Stocks regroup after ‘risk-on’ rally
(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.) Stocks regroup after Friday’s broad and emphatic “risk-on” rally, responding to the increased likelihood that the Federal Reserve will resume cutting interest rates next month into a still-steady economy with equity indexes near record highs. Indexes seeing a modest reversal of Friday’s trends: Small-cap Russell 2000 and the Dow Industrials – big winners in Friday’s move from large to small and growth to value – are lagging the S & P 500 and Nasdaq today. Also seeing Treasury yields and the U.S. Dollar Index leak a bit higher, retracing small portions of Friday’s declines. Among the notable aspects of Friday’s rally was that 90% of NYSE volume was to the upside, a relatively rare display of lopsided buying demand, all the more unusual for occurring with the major indexes at or barely below a record high. The forward implications of this kind of all-in surge are generally quite positive looking out several months or more. Still, the majority of such “90% up days” have occurred when the market is bursting out of a correction or bear market, not after a skimpy 1.8% dip from an all-time high, which is what the S & P 500 did in the days prior to Fed Chair Jerome Powell’s Friday speech at Jackson Hole. Does this make such a signal less reliable than usual? Or does it speak to the “everybody wins” moment Wall Street is in, when a resumption of rate cuts with inflation above target and unemployment still low and earnings rising and credit spreads tight means the extra liquidity will be no medicine for an ailing economy, but a recreational stimulant for risk takers? Wall Street has generally rooted for a kind of “broadening” of the bull market in which the handful of megacap AI winners no longer dominate index returns. Fair enough, though if the broadening comes with outright megacap weakness, it’s a formula for higher volatility and more fragile tape action. As exciting as the Russell 2000’s surge Friday might have been, on a three-year chart it shows up as a mere bounce from a deep hole relative to the Nasdaq 100 at this point. The CBOE Volatility Index is now quite subdued, solidly under 15, as the market gets beyond the Jackson Hole uncertainty and benign late-summer churn is the default assumption for this week. Nvidia earnings and PCE inflation coming later this week and a sometimes-volatile September just ahead but mean VIX tries to find a floor here. Nvidia results Wednesday would seem to face a fairly high bar, given the stock has doubled since the April low, has rebuilt its forward P/E back above 35x and its market cap near $4.4 trillion. Worth noting, though, that in the past several quarters, Nvidia’s results and stock reaction have not dictated the immediate fortunes of the market as a whole.
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