Bulls never got going on Monday as the Nasdaq 100 limped to 12,970, a decline of 0.2%, states Jon Markman, editor of Strategic Advantage.
It was always going to be a tough ask for bulls. Shares of Tesla (TSLA) got smacked last week after the electric vehicle maker posted lackluster profit margins on slashed EV pricing. It’s going to take some time before bulls warm up again to Tesla stock, and that is weighing on the overall Nasdaq 100 index.
There is also some near-term anxiety over a barrage of big tech financial reports due this week. Microsoft (MSFT) will get things started on Tuesday with its third-quarter financial results. Although cloud computing revenue growth has plateaued, Microsoft shares are up 19.3% in 2023 on soaring demand for its generative artificial intelligence offerings.
AI is the hottest investment story on the planet right now and I would be surprised if the quarterly meeting with analysts is not about enthusiasm for this new business vertical. Bulls in the interim will need to hold the Nasdaq 100 above key support levels. The first important marker is 12,931, followed by more significant support at 12,574, the rising 50-day moving average.
I expect bulls to buy any near-term decline to the lower level. However, be mindful that some knee-jerk selling may surface after the Microsoft report.
MCI Market Timing Engine: Members are holding cash or cash equivalents at this time. I expect a significant summer rally yet trade has been choppy. I expect to take advantage of near-term weakness to re-enter a leveraged NDX position; will keep you posted.
Behind the Headlines: The Dow rose 0.2% to 33,875.4 and the Nasdaq fell 0.3% to 12,037.2. Energy led the gainers among sectors, while technology posted the steepest fall.
Breadth was flat. There were 245 new lows vs 159 new highs. The leaders were Eli Lilly (LLY), Novartis (NVS), McDonald’s (MCD), Linde (LIN), and GE (GE). That’s drugs, burgers, chemicals, steel, and turbines. The leadership reflects investors’ yearlong comfort with taking risks on companies that depend on broad economic strength to make their numbers.
The US ten-year yield declined 6.5 basis points to 3.51%, while the two-year rate fell 5.5 basis points to 4.13%. West Texas Intermediate crude oil rose 1.2% to $78.78 per barrel.
The lagged effects of the global monetary tightening cycle are yet to be fully felt and the risks to the world economy are strongly tilted to the downside, Oxford Economics said in a note Monday.
"Stretched valuations, too-optimistic consensus earnings growth expectations, and a (Federal Reserve) that is unlikely to cut rates this year render the risk/reward trade-off in equities unattractive considering the yields available on safer assets," Daniel von Ahlen, global macro strategist at Oxford Economics, said in the note.
In economic news, Texas manufacturing activity fell deeper into contraction territory in April as production stalled and employee costs increased, while outlooks worsened, the Dallas Fed said.
The general business activity index declined to -23.4 this month—its lowest reading in nine months—from -15.7 in March. The consensus on Econoday was for an improvement to negative 11.5.
Separately, the Chicago Fed said its national activity index last month was unchanged from February's reading of negative 0.19. Three of the four broad categories of indicators used to construct the index made negative contributions, with two categories deteriorating month-on-month.