Could Be Quitting Time On The Winning Streak

If the S&P 500 and Nasdaq Composite are going to maintain their weekly winning streaks (S&P 500 up five straight and Nasdaq up eight straight), they are going to have their work cut out for them today. Entering today, the S&P 500 is down 0.6% for the week and the Nasdaq Composite is down 0.4%.

Their work, though, promises to be a little more taxing today seeing that the futures for the major indices are all indicating a lower start.

Currently, the S&P 500 futures are down 34 points and are trading 0.8% below fair value, the Nasdaq 100 futures are down 173 points and are trading 1.1% below fair value, and the Dow Jones Industrial Average futures are down 200 points and are trading 0.6% below fair value.

That negative disposition is wrapped up in some skittishness about global growth prospects after a batch of preliminary June manufacturing PMI readings for Japan, Germany, France, the UK, and the eurozone all printed contractionary readings (i.e., less than 50.0).

This understanding has fostered some favoritism for the dollar (U.S. Dollar Index +0.5% to 102.85), some weakness in WTI crude futures $68.46, -1.05, -1.5%) and copper futures ($3.82, -0.07, -1.7%), and some strength in Treasuries.

The 2-yr note yield is down eight basis points to 4.72% and the 10-yr note yield is down eight basis points to 3.72%. Those are decent moves, although they are taking place within the confines of a nine-month trading range, which is to say they are not “trend shifting” moves even though they are an offshoot of growth concerns.

The preliminary June IHS Markit Manufacturing PMI and Services PMI readings for the U.S. will be out at 9:45 a.m. ET. They aren’t typically market moving, yet they will help round out today’s interpretation of the global economic outlook.

On a related note, Treasury Secretary Yellen told Bloomberg News that she sees a lower risk of a U.S. recession on account of inflation coming down and the labor market’s resilience.

Her assessment of matters seems to align with the stock market’s breakout effort in recent weeks, although the Treasury market is seemingly less convinced. Since May 24, the Invesco S&P 500 Equal-Weight ETF (RSP) is up 4.3%, the Russell 2000 is up 4.6%, and the market-cap weighted S&P 500 is up 6.5%, yet the 2s10s spread over the same period has widened to 100 basis points from 63 basis points.

Seeing is believing for the stock market, though, and it just hasn’t seen enough in the data yet to convince it that the economy is destined for a hard landing. That point notwithstanding, the flight to safety into the mega-cap stocks this year reflects at least some type of slowdown concern.

Sidenote: there are only three sectors that are outperforming the S&P 500 this year: information technology (+39.6%), communication services (+35.4%), and consumer discretionary (+30.6%). Any guesses as to the sectors in which Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA), Alphabet (GOOG), Meta Platforms (META), Tesla (TSLA), and Amazon.com (AMZN) are housed?

Those stocks are in play this morning as drags on the major indices as they are all indicated lower after most of them finished higher yesterday. Today’s weakness can be chalked up to the same idea hanging over the broader market this week: they are due for a cooling off period after their big gains.

Separately, CarMax (KMX) is heating up in pre-market action, trading 7.7% higher following its much better than expected fiscal Q1 earnings report. Another mover of note is Dow component 3M (MMM). It is up 3.3% after the company announced a settlement in the “forever chemicals” matter that calls for the contribution up to a present value of $10.3 billion, payable over 13 years.

These individual winners are the outliers at the moment, however. The broader market is headed lower on the opening shift and will have to work hard to get positive for the week; otherwise, it will be quitting time on the winning streak.

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Originally Posted June 23, 2023 –Could be quitting time on the winning streak