Wednesday's Market Minute: Bulls Need Two Things to Happen

The S&P 500 is 4% higher since last week’s hot inflation print and Netflix (NFLX) is up the most on an earnings report in more than a year. Bank of America’s (BAC) Michael Hartnett says his positioning data is a “screaming” positive for bulls. That echoes what a lot of other people in see the data, including Convexitas’ Zed Francis, who told us yesterday that volatility indicators suggest short-term traders would prefer downside to upside in stocks.

I, too, find the price action of markets most compelling when it’s in the opposite direction of what the fundamentals suggest. Last week’s inflation print epitomized the problem at the core of the bear market, but we’re rallying anyway. Apple (AAPL) yesterday bounced back and closed for a gain despite a report that iPhone 14 production is getting cut back. These are novel signs of resilience, but at least two key things still need to happen to invigorate bulls. 

1) Tesla (TSLA) needs to have a big rally. Elon’s car biz remains one of the most important companies in the market because it is possibly the only mega-cap giant trying to transition from an experimental tech business into an industrial staple. It still swings like a high-beta stock on big days, but now sells enough vehicles to provide crucial insight into the economy like any traditional cyclical stock (Tesla, GM and Ford are all down the exact same year-to-date). Tesla and Apple were the only two big tech companies trading above year-to-date lows last month, and Tesla finally broke last week. There’s likely resistance on the chart near $250, but any move above $230 after earnings tomorrow would lay a nice red carpet for the rest of consumer tech earnings to follow.

2) Bonds. This should go without saying, but Treasury yields need stay under control. With all eyes on the stock bounce the past few days, it’s important to remember that rates have been stubbornly hanging on to recent highs. The dollar’s been on the decline since CPI, but that may be more a reflection of subsiding fears about the British economy than anything related to the Fed or inflation here at home. Rates have not been as friendly to stocks as the dollar, as each rally in bonds fades at lower levels and the 10-year looks like it’s building momentum to break out further past 4%. If that happens, there’s slim chance of a meaningful rally.

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