The Market Is Broadening The Rally

Published on

In his Daily Market Notes report to investors, Louis Navellier wrote:

Positive Trends

Stocks continue to rise, interest rates are lower, gold and crude higher, as earnings season heats up.

Despite the fact that retail sales for June came in light, as did industrial and manufacturing production, stocks continue to motor higher as earnings are trumping investor focus over general economic trends.

Broadening Rally

The banks continue to post beats on very strong net interest income as most are continuing to pay very low interest rates on deposits while earning much more on their investments. Charles Schwab (NYSE:SCHW) and Morgan Stanley (NYSE:MS) also posted beats top and bottom, as did Lockheed Martin (NYSE:LMT). All the premarket reports had an earnings beat this morning.

The only big name remaining today is JB Hunt (NASDAQ:JBHT) after the close and it’s already up 2.6% today, up 8.2% in the last month. The Dow is up over 300 points, at the high for the year, and headed to its 7th consecutive gain in a row, a rare occurrence. The Russell 2000 is leading the indexes this morning as the market is broadening the rally.

NASDAQ’s Rebalancing Act

In another example, the equal rated S&P is up 0.66% today while the market-weighted S&P is up 0.12% as the QQQ is down 0.33%. Part of this is being caused by the planned rebalancing of the NASDAQ index, last done in 2011 and the second time in 25 years. It’s expected that the Magnificent 7 megatechs, up nearly 100% YTD, will drop from 56% of the NASDAQ weight down to 44%. This will help active managers, who are generally restricted to holding no more than 5% in any one name, leaving only around 20% to have beaten the indexes YTD.

Currently, the forward P/E of the S&P has risen above 19X, but inside that the Magnificent 7 average 31X, with the other 493 at 17X. These are very much non-recession levels, and very optimistic given that earnings overall are forecast to come in down 9% y-o-y this quarter, having been pulled down from a forecast of down 6% after last quarter’s earnings season.

It’s obviously important for forward estimates to rise meaningfully to justify the current dynamics, but in the short run, continued beats of the lowered estimates are likely to pull in more money from the sidelines. One encouraging sign is that so far, beats are resulting in jumps in share prices much more than they did in the 1Q23 earning season.

The trend remains very positive in the early innings of the earnings season.

Coffee Beans: Barbie To Go

A burger dressed with a bright pink sauce has been unveiled by Burger King in Brazil as part of a themed meal to herald the release of the new Barbie movie. The cheeseburger, topped with pieces of bacon, comes with a pink vanilla-flavored milkshake, a ring doughnut sprinkled with pink frostings, and an order of Ken’s fries. Source: Sky News. See the full story here.