Confused by today’s sudden intraday reversal in risk assets, which pulled the Dow Jones from up over 160 to barely in the green, while slamming Crude from up over 2% on the day to red?
(Click on image to enlarge)
You are not alone: as JPM’s Adam Crisafulli opines in his intraday “market update” note, “the question isn’t why stocks have come in from their highs but instead why they were so strong to begin with.”
From JPMorgan:
Market update: The reflation trade was strong out of the gate but has reversed a decent amount heading into the afternoon – the question isn’t why stocks have come in from their highs but instead why they were so strong to begin with.
In a lot of ways trading is similar to the last two weeks of Dec in that news is minimal while liquidity remains limited. The only major headlines over the last few days were manufacturing PMIs and while they were either inline (Eurozone, China NBS) or better-than-expected (US, UK, and China Caixin) none of the figures are dramatically altering the narrative around growth and the key for stocks over the coming weeks and months will remain US politics (specifically the progression of tax/regulatory reform and realization of Trump’s trade agenda). Trump’s GM tweet Tues morning didn’t help sentiment although fits a pattern that is now several weeks old (he has tweeted on a variety of corporate matters since 11/8).
The bigger picture backdrop for US equities remains unchanged – the landscape doesn’t seem favorable given the potential for elevated political expectations to be disappointed. On the calendar for the next few days the big events include FOMC minutes (Wed 1/4 2pmET) and US Dec jobs (Fri 8:30amET) while next week (week of 1/9) brings a handful of major catalysts: Obama speaks Tues 1/10, Trump speaks Wed 1/11, Yellen speaks Thurs 1/12, and bank earnings kick off Fri morning 1/13 (BAC, JPM, PNC, WFC).
US equity sector trends:Stocks enjoyed a classic “reflation†trade rally during the day’s opening hour but things have since faded. The fins are still outperforming but only slightly (financials-specific news was quiet and will prob. stay that way until earnings begin on Fri 1/13). Tech is doing a bit better than the SPX; AAPL is adding to its weakness from last week and the SOX is mixed while internet does well (NVDA is extending its losses from last week). Healthcare is very strong and it seems like the space is trying to recoup some of its underperformance from last year (the JPMorgan HC conf. Jan 9-13 will be the next major event for this space). Capital goods are doing a bit better than the overall SPX. Autos is among the market’s best sector ahead of Dec sales numbers out Wed; F in particular is doing well (it was rallying before the 11amET announcement) while GM is higher despite Trump’s tweet. Energy has faded from its highs as oil reverses its initial gains (MPC though is the best stock in the whole SPX after its value-enhancing announcement this morning). Bondproxy groups (staples, REITs, utilities) are lagging although telecoms are very strong (thanks to the JPM u/g of CTL and Citi’s u/g of VZ).
