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Some normal activity after a big run

Posted June 21, 2024 at 9:45 am
Patrick J. O’Hare
Briefing.com

It is reasonable to refer to yesterday’s session as a mixed to slightly weaker session. It is also reasonable to blame NVIDIA (NVDA) and other mega-cap stocks for weighing on sentiment. NVIDIA, for instance, had been up 3.8% at one point but finished the day down 3.5%.

NVIDIA’s reversal had a lot to do with the Nasdaq breaking a seven-session win streak. It basically took the wind out of the market and became a cue for profit-taking activity in other momentum-fueled stocks.

NVIDIA is down another 2.0% this morning, and, true to form, that disposition has been a drag on the equity futures market along with some slowdown worries that were piqued by some weaker-than-expected flash PMI readings for June out of Asia and the eurozone.

Currently, the S&P 500 futures are down six points and are trading 0.1% below fair value, the Nasdaq 100 futures are down three points and are trading roughly in-line with fair value, and the Dow Jones Industrial Average futures are down 27 points and are trading 0.1% below fair value.

Those aren’t unnerving indications.  Arguably, they fall under the umbrella of being normal at this point for a market — and some specific stocks — that have come a long way in a short amount of time and are due for some consolidation.

Given the weight of the mega-cap stocks, the broader market will struggle to advance if their support is lacking; however, a lack of support from them doesn’t necessarily mean the market has to lose a lot of ground. It won’t if there is a rotation away from the mega-cap stocks and into other stocks.

Where the market will struggle is if the mega-cap stocks are weak and nothing else garners interest to compensate for their weakness. That wasn’t the case yesterday. The mega-cap stocks faded but there was buying interest elsewhere, evident in the fact that the equal-weighted S&P 500 closed fractionally higher while the market-cap weighted S&P 500 closed 0.3% lower. Separately, the Dow Jones Industrial Average increased 0.8%.

We’ll have to wait and see what today brings on what is going to be a very heavily-traded session with the quarterly options expiration and the index rebalancing for S&P Dow Jones Indices and ETFs.

Also, the market will be reacting to a slate of economic data that includes the preliminary June S&P Global U.S. Manufacturing and Service PMIs at 9:45 a.m. ET, the May Existing Home Sales Report at 10:00 a.m. ET, and the May Leading Indicators Report at 10:00 a.m. ET.

That data should kick up some dust in the Treasury market as traders read into what any of these released could mean for monetary policy. Currently, the 2-yr note yield is down three basis points to 4.70% and the 10-yr note yield is down three basis points to 4.22%.

Originally Posted June 21, 2024 – Some normal activity after a big run

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