Bulls and bears agree here on a possible recovery in stocks. A group might be a way to play it
This is Mike Santoli, Senior Markets Commentator at CNBC’s daily notebook for ideas on trends, stocks and market stats. Delayed continuation of Friday’s upleg as evidence mounts that investors have sharply scaled back stock betting and consumer activity. Auto production figures give the aggressive recession callers no real backing. The S&P 500 is hovering around last week’s highs, with some faux pas to absorb the knee-jerk “sell the rallies” action that this year’s downtrend has ignited. The rally since last Thursday’s low is now more than 5% and has the classic hallmarks of a decent trading bottom. Of course also the tests in January, February and March. One difference this time is that there were a few more extremes in terms of downside momentum and the number of stocks trading below the 50-day moving average and the like. Friday’s bounce rebuilt a small cushion with broad upside energy and over 90% of the volume in rising stocks. Feeding the 13F filings of large hedge funds like Tiger Global, which show strong liquidation of big tech holdings, along with today’s Bank of America fund manager survey revealing a sharp decline in growth stocks and the highest cash holdings in two decades likewise the notion that pros are easily positioned. Both bulls and bears are allowing for the possibility of a sustained upleg, perhaps to 4,200 or even above 4,300 for the S&P 500. By comparison, few handicappers are willing to say the bottom is in. Most of the recent sentiment extremes and the like have had positive impacts on forward yield, but mainly on a multi-month time frame and with major exceptions during deep bear markets accompanied by recessions (2000-2002, 2008-2009). Alongside this reduction in positioning/crowding risk, progress has been made in washing valuation risk out of the markets. When the S&P 500 jumped from the same levels a year ago, it soon reached 23 times expected earnings. It’s now around 17 and still rich over the long term, but the median S&P stock is a lot cheaper and the smaller-cap indexes are getting downright cheap. Yes, there remains a risk in anticipating earnings forecasts. This has happened several times over the past decade, but small/mid-cap indices are trading less expensively during this period than at any other time. Fedspeak hasn’t done much for the past few days as 2.5% hikes in June and July seem almost inevitable. Treasury yields are higher on better economic data/risk sentiment but are still well below recent highs. Retail sales excluding autos and excluding gas have been resilient and broadly show no real consumer distress. Of course, there may be a pinch as wage growth slows and inflation remains elevated, but broadly this is consistent with the Federal Reserve’s view that the economy here is somewhat resilient to expected rate hikes. Walmart muted the quarter with overstaffing, high inventories and an inability to be compensated for supply chain stress and wholesale pricing gains. A Walmart store has the full range of consumer goods and necessities, so higher prices for groceries meant spending less on the rest. That’s real dynamic, but it also suggests a self-limiting element of retail inflationary pressures as the company, which generates about 2% of US GDP, eats up some of the cost increases. WMT’s stock lineup also explains part of today’s 10% stock decline. It had outperformed TGT by 20 percentage points over the last six months starting today as investors took refuge in perceived stability and a game with the ‘trade-down’ consumer. Recall WMT is active in the consumer staples sector and has absorbed the money flows hidden there. TGT, a much cheaper stock that’s down 2% today, now appears to be setting a lower bar for its results tomorrow. Money manager stocks have tremendous leverage on market levels and investor risk appetite. They will be hit as both stocks and bonds fall in value and fears of further outflows. Quality money managers/managers have taken a serious valuation discount. Those expecting the markets to take root might find this a decent way to play that view. Market breadth is solid today, with nearly 90% up volume on the NYSE and the equal-weight S&P 500 with slight outperformance. VIX says the market had a decent flush in the mid 20’s and was less stressed. VIX futures have returned to their normal, less choppy price curve.
https://www.cnbc.com/2022/05/17/santoli-bulls-and-bears-agree-on-a-potential-bounce-for-stocks-here-one-group-could-be-a-way-to-play-it.html Bulls and bears agree here on a possible recovery in stocks. A group might be a way to play it
