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This is a daily notebook by Mike Santoli, Senior Market Columnist for CNBC, with insights on trends, stocks and market statistics. For now, the market is allowing the two-day rally to hold in the new quarter as everyone waits for a consistent monthly employment report. The initial assessment of retesting the June low and reverse rally suggests that this is a respectable figure with a decent chance of being significant, but more needs to be proven. Honest opinion at such times always sounds ambiguous and incoherent, but this is a game of changing probabilities, and the start of another bear market rebound looks indistinguishable from a climactic low and the start of a new uptrend. The S&P 500 is still looking up at 3800, which the bulls hoped would hold its way down, so there is still a lot of work to be done. But the slight undermining of the June low was “quite close” as the re-tests took place, and some flags were ticked: sentiment was worse but the number of new lows isn’t that bad, small stocks held up a little better compared to big stocks, and breadth is on the rally was incredibly strong. The index should show more sustained momentum, but there was a decent display of real demand around 3600, a 25% decline rate from the peak, with more if not all of the Fed/earnings cut priced in and stock positioning very defensive. . For the stock’s multi-year horizon, buying the market 25% was an acceptable strategy, even if you’re in for a nasty bounce to new lows. Speaking of positioning, the National Association of Active Investment Managers stock exposure index has rebounded from multi-year lows, but is still below neutral levels. This is support, but no longer a screaming opposite buy signal. Shares of energy companies continue to lead confidently, significantly outperforming oil. Some of it is natural gas. Some of them are decent cash flows at these oil prices. Sometimes it’s just the shortfall of companies with rising profit margins. But maybe, just maybe, this is becoming a crowded trade? The Fed’s statements remain fairly consistent: there will be no announcements of a victory over inflation in the near future, and rates should rise and remain above 4%. They absolutely should and will continue to say so until they are ready to pause, which will only happen after months of declining inflation and/or a bad market/economic crisis. There isn’t much news in the repeats, and we are at least closer in time and distance to the Fed’s likely target area, which is a modest plus. The street wants a decent number of jobs tomorrow with a jump in employment rates that can raise the unemployment rate relatively painlessly to help the Fed. Bond market volatility is too high to allow equities to settle comfortably in recovery mode, so the volatility in Fed expectations remains a headwind. The Treasury MOVE index is in many ways more important than the VIX. Market breadth is soft. Credit is fine after strengthening a lot. The VIX is held around 30 before payroll.
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