The Dow, Nasdaq, and S&P 500 all hit record highs yesterday, which included the first ever push above 40,000 for the Dow. It was a sight to behold, but then that level could not be held.
The Dow closed at 39,869.38. The Nasdaq and S&P 500 also couldn’t hold their early gains and finished the session with modest losses. A pullback should not have been seen as a surprise.
At their highs yesterday, the Dow, Nasdaq, S&P 500, and Russell 2000 were up 5.9%, 7.3%, 5.8%, and 6.8%, respectively in May, and up 6.5%, 10.4%, 7.5%, and 9.1% respectively, from their lows in mid-April. In other words, they were ripe for some profit-taking activity.
Also of note, the S&P 500, at yesterday’s high, was trading at 20.8x forward twelve-month earnings or a 17% premium to the 10-year average, according to FactSet. It is not a stretch to think that there was a valuation headwind blowing.
It wasn’t a strong headwind, but it was enough to slow the market’s breakout effort. That progress is still stalled for the most part this morning.
Currently, the S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 34 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 25 points and are trading fractionally above fair value.
These indications point to a flattish open for the indices, which to be fair isn’t bad given how far they have come in a short amount of time. There is a bit of a battle, we suspect, between the fear of missing out on further gains and the fear of overpaying for stocks into what is shaping up to be a slower period of economic growth.
Accordingly, there is an understandable wait-and-see perspective that is keeping things in check this morning at the index level on this monthly options expiration day.
There are, of course, individual movers of note. GameStop (GME) is a lowlight in that respect, trading 19% lower after taking down its Q1 revenue outlook and announcing a 45,000,000 share offering, whereas Redditt (RDDT) is a highlight, trading up 11% after announcing a partnership with OpenAI to bring Redditt’s content to ChatGPT and other OpenAI products.
Leading chip equipment maker Applied Materials (AMAT) is up 1.3% after reporting better-than-expected fiscal Q2 results and issuing in-line fiscal Q3 guidance.
These story stocks, though, aren’t moving the needle for the broader market. China for its part is attempting to move the needle on its real estate market, announcing initiatives that lower minimum down payment requirements for first-time homebuyers and providing $42 billion for financial institutions to lend out so state-owned enterprises can purchase unsold apartments, according to CNBC.
This news was offset somewhat by a batch of mixed data for April retail sales, industrial production, and fixed asset investment. In any case, the news out of China hasn’t been much of a market mover here.
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Originally Posted May 17, 2024 – A bit of a battle going on
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