'Struggling' Market Has the Potential to Roll Over
The most notable aspect of the action Monday was the very poor breadth, as negative news contributes to lackluster performance.
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Stocks traded mixed for most of the day until Minneapolis Fed President Neel Kashkari commented that the balance of risks has shifted from inflation toward the potential for higher unemployment. That isn’t a surprising observation, but the media has been celebrating the "fantastic" jobs report released on Friday, and Kashkari forced the market to consider whether it really was wonderful. It didn’t help matters that interest rates are creeping higher.
As I discussed in my opening column on Monday morning, there are some major flaws in the jobs report, and the view that a recession is extremely unlikely may not be correct. The market has been running on the idea that we have perfect economic conditions and a Fed that is in control, so why shouldn’t the market continue higher?
That degree of economic optimism is a recipe for disappointment, especially when the market is struggling to continue its upside momentum and is exhibiting the potential to roll over.
The most notable aspect of the action Monday was the very poor breadth. Nvidia NVDA and Eli Lilly LLY were two bright green spots in a sea of red. The Magnificent Seven was hit with a loss of 1.9%, the Russell 2000 IWM stumbled 0.8%, and the DJIA was down 0.9%. Breadth was very poor, with around 2,300 gainers to over 7,100 decliners. There just wasn’t much buying interest.
Worries about the Middle East and oil contributed to the lackluster performance, and the potential for a hit from another powerful Hurricane didn’t help the mood either. There is a lot of negative news flow right now, and the very contentious presidential election is causing anxiety for a lot of folks as well.
Technically, the indexes are holding support levels, but it is a struggle, and the potential for a downside break is not insignificant. We have CPI on Thursday and bank earnings on Friday, but there isn’t much to motivate buyers while we wait.
Have a good evening. I’ll see you Tuesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
