Inflation, earnings have traders less bullish in Q2: Strategist
Markets (^DJI, ^IXIC, ^GSPC) have experienced significant volatility this week, soaring to record highs before plunging sharply. To provide insight into the market outlook, Charles Schwab Head Trading and Derivatives Strategist Joe Mazzola joins Market Domination Overtime.
Mazzola highlights that the ongoing volatility has shifted investor sentiment on markets. He cites several factors contributing to this shift, including Fed officials’ signals of higher-for-longer interest rates, hot inflation prints, and Nvidia’s earnings release. “A lot happened in the middle of the week,” Mazzola says, adding, “it’s a lot for markets to digest.” He notes that the only sectors that “had a good week” were tech and industrials.
“There’s a lot of churn under the surface right now,” Mazzola tells Yahoo Finance, as investors grow increasingly concerned about inflation outlooks and market valuations.
For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.
This post was written by Angel Smith
Video Transcript
Memorial Day weekend is here.
And the unofficial start of the summer usually brings with it a lower volume in the markets.
And despite markets hitting records this week, there are overhangs higher for longer rates and a looming presidential election.
And according to a new survey from Charles Schwab, traders are feeling less bullish joining us.
Now is Joe Mazzola, he’s the head of trading and derivatives specialist at Charles Schwab.
And thank you for joining us today as we head into the weekend, kind of a crazy week here.
Just tell me how are you seeing the markets right now?
So it’s interesting to, to think that we’re, you know, within a stone’s throw of all time eyes when uh the volatility we saw at midweek just, you know, I think shook the markets a little bit, but whether it was uh the fed minutes pointing to hire for longer or, you know, even some fed governors wondering if we’re restrictive enough.
Uh And then, you know, you have uh the PM is that came in a little bit hot and, and then right along with that, you get a Moonshot earnings announcement from NVIDIA, which kind of set the things straight again.
So a lot happened in the middle of the week.
It kind of feels like we trickled off a little bit into the weekend.
But uh you know, it’s, it’s a lot for the markets to digest and a lot for traders to digest.
Yeah.
And Joe just put things in perspective for us as well because as you mentioned, we kind of trickled off into the weekend.
It’s a holiday weekend, we’re going into the summer season.
Do weird things happen on Fridays and summer, it feels like, you know, volume thin.
And so there’s sort of some mysterious market movements sometimes.
Yeah.
No, they, they can uh you know, one thing I noticed for sure from my old uh option trading days is that the Friday going into a long weekend, you tend to see uh the vics come down a little bit.
Uh We saw that today trading back down around 12.
Uh That’s just because option traders don’t want to hold the extra day of time decay over the weekend.
So a lot of times you see volatility compress on the Friday before a long weekend.
But that also can mean as you, as you mentioned is, is, is you can see uh declines in volumes and when there’s declines in volumes, that means b as spreads tend to widen out, which means that you can see some, some movement.
And what’s interesting to me kind of given the week that we saw is, um like I said, even with all the volatility we saw in midweek, there’s really only maybe one sector and that’s tech, that had a good week.
Uh you know, tech was up over around uh 11 and three quarters to 2%.
But for the, for the most part, uh the only other sector that was, that was unchanged was industrials, everything else was down in the week.
And then if you look at the, at the exchange at the indices themselves dow was down quite a bit.
I mean, a lot of that’s off the, off the the Boeing announcements.
Um But then, you know, you, you saw the, the Russell having a hard time uh holding pace as well too.
So there’s a lot of churn under the surface right now.
A lot of that kind of, you know, gels with what we’ve seen from our, our, our trader survey in, in terms that, you know, they’re not feeling as bullish as they were in the, in, in Q one.
I think there’s a little bit of um I don’t want to say trepidation, but at the same time, a little concern, right?
A little consternation as we, as we kind of move into the summer months.
And I think part of it is, you know, it’s really two fold.
It’s the, it’s the inflation data that we got back in, in April that uh that, that proved hotter than expected from the the, the CP I to, you know, uh the PP I uh and then also kind of what we’re seeing from uh market valuation, even though earnings were really good.
You know, we had an 80% beat rate.
We’re still a little bit light on the revenues and it’s the guidance going forward that I think is maybe giving um investors a little bit of a pause.
So what do you think the next catalyst is we got some earnings reports still trickling in next week.
We have P CE but if you read CP I and adjust the rings, you can kind of figure out what it already is.
What do you think moves the market next?
Yeah.
No, I and I think it’s a great point that uh you, you, you just alluded to there.
I think one of the diff differences between the CP I and the PC and the P CE is going to be that housing component, the CP I has got a much higher weight of uh of that housing component built into it than the P CE does.
So, you know, if, if the expectations of that sticky inflation on the service side has been holding up uh that CP I and you know, really from housing, then the expectation should be.
If you pull that out.
Uh maybe to not to the same extent in the P CE, maybe you’re seeing a little bit of a of a, of a move more towards that disinflation than I think the markets are hoping for.
But really, yeah, the catalyst is going to be interesting because like, like I said, we are close to all time highs but what’s going to be that thrust to push us back up?
I think NVIDIA definitely helped this week, but there’s really nothing uh outside of maybe, you know, sales force.
Uh Costco, you might look at next week in terms of to see kind of what the consumer is doing.
Uh I think that’s important because we, you know, we keep hearing this narrative that consumers are getting and that they don’t have the same cash that they did before.
And are they still spending?
Are, are they moving down?
Right, in terms of uh uh what the products that they’re buying?
I think we started to see that.
But then the durable goods number today, you know, showed that uh it was higher than expected and, and, but even even that, even when you look at the durable goods, that that wasn’t a clear sign because we had revisions back for the last number.
So it’s a lot of this kind of choppy back and forth data, whether it’s the soft data that’s coming in less than expected, but the hard data is uh kind of holding firm.
So I, I think there’s a lot to digest and that, you know, to me, once again, when I look at that, that trader survey that makes a lot of sense to me because there’s just no clear cut path right now.
Well, Joe, one of the catalysts that’s been pretty consistent has been this A I enthusiasm, as evidenced by NVIDIA this week.
And I thought it was interesting that in your uh survey, the traders think that A I is crowded, the trade is crowded but they still like it.
Yeah, I know.
And that’s, I think that’s such a key point because this trader sentiment survey, it’s a survey.
So it’s attitudinal.
But then we also have the Stax report which I, you know, I, which I talked to you guys about earlier uh earlier in the month and the Stax report is the behavioral uh version of it.
So what are they doing?
Versus what are they saying?
So they, even though they might say that, hey, that seems like an overcrowded trade, the three stocks that they bought the most heavily in that April cycle were a MD.
NVIDIA and S MC.
I.
So what happened between those three names?
NVIDIA pulled back 10%.
They use that as an opportunity to buy the dip.
A MD and S MC.
I were both down around 20%.
They use that as an opportunity to buy the dip.
Uh So while they might be saying it’s overcrowded, they’re looking for opportunities, they’re picking their spots and they’re being very discerning in when they go ahead and buy those by those names.
Joe good to see.
You.
Have a great holiday weekend.
You too, thanks so much.
Thanks.