Stocks chopped around beneath the unchanged all session Monday amid renewed inflation fears and weakness among tech and communication services companies, notes Jon Markman of Pivotal Point.
Although most of the popular stock averages ended with modest losses, Monday was a good day for bullish investors. Sharp early declines were mostly reversed later in the session and cyclical issues continued to attract buyers.
The S&P 500 (SPX) is now set up Tuesday to fill its gap at 4,188. The tech-heavy Nasdaq may perform even better as short-term traders push bearish investors to cover wayward short positions.
Everything points to a rally to major resistance at 13,550. If that move comes to pass it would represent a gain of 1.25%. Tuesday should be stronger across the board. The benchmark S&P 500 has support at 4,150 and 4,070.
The Dow Jones Industrial Average slid by 0.2% to 34,327.79, the S&P 500 was down by 0.3% to 4,163.29 and the tech-heavy Nasdaq Composite was lower by 0.4% to 13,379.05. Energy, materials and financials were the only gainers among the sectors.
Advancers actually beat decliners by a slim margin and there were 326 new highs vs. 70 new lows, an oversold condition. Leading the new high list were Wells Fargo (WFC), Citigroup (C), Novo Nordisk (NVO), Bank of Montreal (BMO), Newmont (NEM), Dow (DOW), and Schlumberger (SLB).
In data land, the stronger-than-expected US inflation reading for April—4.2% versus 3.6% consensus—most likely reflects transitory base effects and supply issues, Federal Reserve Vice Chair Richard Clarida said Monday. The Fed will monitor incoming data and react if the recent gains in the inflation rate prove to be more persistent, he added.
S&P 500 earnings will beat consensus earnings per share estimates this year but the market's expectations are set to be disappointed in 2022 because of factors such as the recent increase in Treasury yields and expected US tax reforms, according to a research note from Goldman Sachs.
"Although our 2021 EPS estimate is $4 above the bottom-up consensus, our 2022 estimate is $7 below consensus because we incorporate expectations of higher corporate tax rates next year," Goldman analysts said in the note.
In company news, AT&T (T) said it will combine its WarnerMedia unit, which includes HBO Max, CNN, and Warner Bros., with Discovery (DISCA) to create a standalone company that will push streaming content. As part of the deal, Discovery will acquire WarnerMedia in an all-stock transaction that will see AT&T receive $43 billion in cash and debt securities.
Comcast (CMCSA) declined by 5.5% intraday, the steepest decliner on the S&P 500. Walt Disney (DIS) was also lower by 2.1%. Discovery traded 5.1% down and AT&T was lower by 2.7%.
Kind of a nothingburger session, really.
Learn more about Jon Markman at Pivotal Point.
