The Nasdaq Composite declined 2.0% on Thursday with losses in Tesla (TSLA), Netflix (NFLX), and semiconductor stocks weighing heavily. Based on this year’s rules of stock market physics, however, what goes down must go up. Sure enough, those stocks and others are making a rebound effort that has the Nasdaq 100 futures in better shape this morning.
Currently, the S&P 500 futures are up 19 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 99 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 62 points and are trading 0.2% above fair value.
There isn’t much more to it other than a Pavlovian, buy-the-dip response knowing that the news flow hasn’t possessed a catalytic pop. What will be watched closely today is whether that response holds up as the day progresses or if it is stifled by a renewed bid to take some money off the table.
Much of the news flow has been earnings related. Dow component American Express (AXP) is the headliner on that front. It topped the Q2 consensus EPS estimate, but its revenues were light of expectations and it logged a notable increase in its provision for credit losses that is being blamed for its weakness.
AXP is down 4.1% in pre-market trading. That is having some impact on the Dow Jones Industrial Average futures, but in general, it isn’t having much impact on the broader market, which is keying off the rebound action in stocks like Tesla, Netflix, Microsoft (MSFT), Apple (AAPL), and NVIDIA (NVDA).
Similarly, railroad operator CSX Corp. (CSX) is down 3.2% after posting some lackluster Q2 numbers, but, again, the broader market is orienting itself toward the price action of its heavyweight leaders.
There isn’t any U.S. economic data of note today, so the stock market won’t be getting a push one way or the other from the economic calendar. Treasuries, in turn, might be searching for a trading catalyst.
The 2-yr note yield is down one basis point to 4.83% and the 10-yr note yield is down three basis points to 3.82%, perhaps keying a bit off an interest-rate differential trade following a Bloomberg report that indicates Bank of Japan officials don’t see an urgent need at this point to address the yield curve control policy.
That report has tamped down speculation of a shift at next week’s BOJ policy meeting, which is evident in the yen’s weakness today. Currently, the dollar is up 0.9% against the yen to 141.38 after being up as much as 1.3% earlier.
As a reminder, the Nasdaq 100 special rebalance will be effective before the open on Monday.
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Originally Posted July 21, 2023 – Following rules of stock market physics
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