Stocks Move Higher But Fewer Stocks Participating

Key Takeaways

• Stocks Rally Over 1%
• Economic Data Continues Showing Stubbornly High Inflation
• Financials Quietly Making Highs

It was yet another record setting day for equities. The S&P 500 added 1.12% while the Nasdaq Composite gained over 1.5%. Markets were led higher by many of the same names that have been propelling the market over the last year. Shares of Nvidia and Super Micro Computer
SMCI
both jumped over 7%. The gains came despite another economic report showing inflation remains stubbornly high.

Tuesday’s Consumer Price Index (CPI) was slightly higher than economists had forecast, leading both Jamie Dimon and Ken Griffin, at different events, to suggest the Federal Reserve should wait to cut interest rates so as to avoid having to potentially turn around and later raise rates. The most recent reading on the Producer Price Index (PPI) will be released tomorrow. Forecasts are calling for Core
CORE
PPI to be up 0.2% month-over-month and 2% year-over-year. We’ll also get a look at February Retail Sales which are forecast to be up 0.5%. And speaking of retailers, Dollar Tree
DLTR
released earnings this morning that missed and the company also offered a downbeat outlook. That came despite same store sales coming in ahead of expectations, but average tickets fell 1.5%.

Some other individual stocks making news include Boeing
BA
and many of the airline stocks. As the fallout over Boeing safety issues grows, it’s affecting plans for airline companies such as Southwest Airlines. Shares of Southwest fell 15% on Tuesday. Meantime, shares of Boeing fell 4% on Tuesday and are down 29% for the year.

While the Magnificent Seven stocks continue garnering headlines, another group of stocks worth watching is the financials. Shares of Goldman Sachs
GS
were up 0.5%, JP Morgan gained 0.83% and Wells Fargo
WFC
added 0.89%. While those gains may not seem particularly significant, as a whole, financial stocks have been very strong. The Select Sectors SPDR Turst Financial Index is up 10% this year and over 30% since October. I think this is directly tied to the stronger than expected economic data we’re seeing and words of caution from Dimon and Griffin. As expectations for a rate cut continually get pushed back, financial stocks end up being winners because of higher rates. Therefore, if we continue to see strong economic growth in tomorrow’s PPI and Retail Sales reports, I wouldn’t be surprised if financial stocks continue their move higher.

I’ve mentioned a few times how I’m watching the rally in bonds and gold as this could be a sign of sector rotation out of stocks. I realize I’m saying that with stocks hitting all-time highs and the VIX closing down 9% on Tuesday. However, another interesting item of note worth mentioning is the advance/decline line and advancing volume vs. declining volume. As I went to look at these numbers, I expected to see advancers and advancing volume far outpacing decliners and declining volume given the fact we were up over 1% in both the Nasdaq and S&P 500. However, it was the exact opposite. I think what this tells us is yesterday’s rally, while impressive, was concentrated. Traders often talk about concentration risk and when you have a day where indices look strong, but the number of participants is limited, it’s worth noting.

For today, I’m going to be watching bonds and gold. I’ll also be keeping an eye on volatility. But with little in the way of news expected until tomorrow, I think the path of least resistance continues to be higher. As always, I would stick to your investing plans and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.