Taking a Well-Deserved Breather

Even the most robust market rallies take pauses now and again.  We got off to the now all-too-common “gentlemen, start your engines” move in the pre-market, but that failed to get sufficient follow-through after the opening burst.  Since then, major US indices have meandered at roughly unchanged levels.  It’s hardly a rout, but after a stretch that featured four straight 1% up moves in the Nasdaq 100 (NDX), today’s activity seems like an anticlimax.

The pre-market ramps are quite evident in the charts below.  Futures steadily improved throughout the morning, only to fizzle once the bell rang.  We had steady pre-market rallies over each of the past three days, but Monday’s and Tuesday’s moves were merely preludes to stunning, relatively uninterrupted advances during the regular sessions.

1-Day Chart: September ES (1-minute bars) and NQ (blue line) Futures

Source: Interactive Brokers, past performance is not indicative of future returns.

3-Day Chart: September ES (5-minute bars) and NQ (blue line) Futures

Source: Interactive Brokers, past performance is not indicative of future returns.

While a reason for a pause is not strictly necessary – sometimes we simply see buyers refraining from chasing shares that had rapidly appreciated – we didn’t get much help either from geopolitics or high-profile earnings this morning. 

Significant declines in oil futures provided a key tailwind for stocks recently.  Most notably, yesterday’s big pre-market rally occurred after Treasury Secretary Bessent said, “There is a chance we may have a deal today or tomorrow to open the strait and move towards a more normalized position in this conflict” during a CNBC interview.  No deal was announced yesterday, and we’re still awaiting one today.  There’s no reason to believe that one won’t be announced (except for the repeated promises that have failed to materialize over the past few months), but steady oil futures and bond yields reflect markets that are watching and waiting, not pricing in any additional hopes for tankers moving through the Strait of Hormuz.

We’re getting the now-usual array of large percentage changes after companies reported earnings.  One of the key winners is causing the Canadian market to outperform the US.  Shopify (SHOP) is the third-largest component of the S&P TSX 60 (TSE60), and its 15% rally is helping that index rally by more than 1%.  It is also a popular name with US investors, but not as popular as two notable stocks that are trading lower this morning.

Many eyes were focused firmly on SpaceX (SPCX).  This stock has been among the most active since its recent IPO, and this was its first report as a public company.  Some commentators are making note of SPCX’s 8% drop today, but it only erases yesterday’s enthusiastic ramp.  Bulls and bears can each glean information that bolsters their theses – revenues and EPS beat expectations, but so did spending – and there are valid concerns about tomorrow’s expiration of the lockup on roughly $100 billion worth of shares, but today’s drop is more of a reversion than an outright display of disappointment.

SPCX, 3-Days, 5-minute bars

Source: Interactive Brokers, past performance is not indicative of future returns.

Advanced Micro Devices’ (AMD) 6% loss, however, echoes an all-too-familiar theme.  The company’s sales, profits, and guidance all beat published estimates, but not by enough of a margin to satisfy investors.  Revenues rose by 50% to $11.5 billion, above the $11.3 billion estimate, and the pro-forma EPS of $1.66 exceeded the $1.62 consensus.  They also offered revenue guidance for next quarter of $13 billion, +/- $300 million.  That was greater than the published consensus of $12.5 billion, but below the most optimistic projections.  Really good is apparently not good enough when awesome is priced into the shares.

As the week progresses, we’ll hopefully learn of a development that will allow tankers to traverse the Strait, and we’ll certainly learn about the state of the labor market when the July employment report is released on Friday.  Investors will also be paying close attention to Sandisk (SNDK) earnings after today’s close.  That stock’s stunning rally and sharp pullback are a fascinating prelude to a report that could further shift the market’s mood.  Or not. The mood remains sanguine, even if we’re sideways today.