The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Squirrely.
Futures were up, then they were down. Then they chopped around. The market opened with the S&P down about 4 points. On the heels of yesterday’s drop, this was concerning. The index was off 25 points before climbing to +10 just before lunch. The index rolled over within 30 minutes and made new lows for the day, down 35 points. The bounce happened there and the index went back to +5, rolling over to -15, then climbing again. And the pattern continued.
The headlines weren’t too interesting and the data from the morning didn’t change any narratives. We just went on a bit of a roller coaster today. Thankfully the dips and pops were modest but the action was odd. Capital flow was completely average and the yield curve twisted small.
The markets are closed tomorrow in observance of President Carter’s passing and nonfarm payrolls (+163k est vs +227k prior) release Friday morning at 8:30 AM. Investors didn’t front-run Friday’s data in any appreciable way. A small surprise from NFP won’t likely matter to markets so we’re left to wonder what will get investors to react significantly?
Shockingly bad news will certainly collapse equities, that’s not saying much. The more useful perspective is to ask “what will it take for the bull market to resume?”
Status quo hasn’t been sufficient since December. Upside momentum has petered out and investors aren’t looking to jump-start it just for the sake of continuing things. We’re at a point where it looks like the market needs a catalyst to continue higher.
I don’t think we have a compelling news story or data release that will be the answer either. The economy is stable and unlikely to surprise the markets in a compelling way. The Fed is on rails and not looking to juice risk-taking. Will earnings season surprise so significantly that investors re-expand valuations?
I think that’s what’s needed. The market needs a story to latch on to, in order to feel comfortable paying up another price-to-earnings multiple or two. The market needs a story to believe that allows it to bump the current earnings growth expectations. Right now S&P 500 earnings growth is projected for 2025 and 2026 to be 14% and 12%.
What’s the story need to be, what’s the earnings season need to sound like, to get the market to bump up those growth numbers?
I think those numbers need to bump up for the bull market to continue in 2025. Is there a narrative on the horizon, within the coming earnings season, to accomplish that?
Maybe. The market needs it however because it’s not climbing on faith any more. The market is in a show-me mode and not trending until it gets some kind of plausible guidance.
See you Friday
-Mike
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