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Bears Have Their Work Cut Out For Them

Posted October 20, 2021 at 10:00 am
Patrick J. O’Hare

The S&P 500 and Nasdaq Composite have enjoyed five straight winning sessions. During that streak, they have increased 3.9% and 4.6%, respectively, yet their uptrending ways go back even further. Since their lows on October 4, they are up 5.6% and 6.7%, respectively.

Those hefty moves could explain some of the hesitant-looking action in the futures market, as traders sniff the potential for a consolidation trade of some kind taking root.

Currently, the S&P 500 futures are flat and are trading 0.2% above fair value, the Nasdaq 100 futures are up 12 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are down 23 points but are trading 0.3% above fair value.

It is notable that, despite the robust gains logged in recent sessions, the stock market isn’t buckling to selling pressure even though it appears overextended on a short-term basis. This suggests the onus is going to be on the market bears to change the trading tone.

They will have a challenge in front of them today. Most of the earnings results have been better than expected, there are reports that the Democrats may be getting close to an agreement on a $1.75-1.9 trillion social spending package by the end of the week, and commodity prices are coming off the boil.

Still, there is enough to cling to that would provide some cover to try to force the action:

  • Netflix (NFLX) is down 1.6% after its Q3 earnings report, which featured relatively disappointing EPS, revenue, and global streaming paid net adds guidance for Q4.
  • China reported its first decline in new home prices in more than six years, adding to concerns about an economic slowdown there.
  • UK doctors are reportedly pleaing with the government to reimpose some COVID restrictions due to the continued strain on medical facilities and medical professionals from elevated case counts.
  • The September CPI report for the eurozone and the PPI report for Germany both showed elevated inflation pressures.
  • Margin pressures from higher labor and commodity costs remain acute, evidenced by a fiscal Q1 warning from restaurant operator Brinker Intl. (EAT).
  • If the Democrats are able to pass their social spending package, then it would invite higher corporate tax rates that would pinch 2022 earnings prospects.

For the time being, positive responses to the earnings reports from United Airlines (UAL)Abbott Labs (ABT)Biogen (BIIB)Verizon (VZ)Winnebago (WGO)Anthem (ANTM), and Nasdaq (NDAQ) are lending support.

Bonds are behaving reasonably well, too. The 10-yr note yield, which stood above 1.65% overnight, has backed down to 1.62% in conjunction with sliding oil prices ($81.98, -0.98, -1.2%).

Featured earnings reporters after today’s close include Tesla (TSLA)IBM (IBM)Lam Research (LRCX), and Las Vegas Sands (LVS).

Originally Posted on October 20, 2021 – Bears Have Their Work Cut Out For Them

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