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Briefing.com Summary:
*The market is back in a buy-the-dip mode.
*Micron and Alibaba have provided more fodder for the AI trade.
*Stocks are "fairly highly valued," but the market thinks "maybe not."
The major indices were all weaker yesterday, so instinctively they are all indicated to open higher today because what this market does is buy the dip. It does that to test the mettle of the tape, which has been cooperative time and again with the buy-the-dip approach.
Currently, the S&P 500 futures are up 12 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 59 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 79 points and are trading 0.2% above fair value.
Yesterday's dip was governed by a pullback in the mega-cap stocks and an assertion by Fed Chair Powell that stock prices are "fairly highly valued." That assertion has been uttered by plenty of other market watchers, so it wasn't truly revelatory. Nonetheless, it acted as an ostensible catalyst for some overdue profit-taking activity.
One can see, frankly, in this early bounceback effort that market participants haven't been shocked by Mr. Powell's assertion that stock prices are "fairly highly valued." It is an objective viewpoint grounded in the understanding that the S&P 500 is trading at 23x forward 12-month earnings, which is a 24% premium to the 10-year average, according to FactSet.
Yes, stocks are "fairly highly valued," yet the tale of the tape is that the market thinks "maybe not" given the AI boom, the pivot to lower policy rates, and stimulative tax policies. Its hopeful view remains supported by the absence of a disillusioning fundamental catalyst.
Be that as it may, there is a subconscious level of respect for the objective fact that stocks are "fairly highly valued" and could be subject to a material setback if such a catalyst arises. That is why the breakout effort now has an incremental look to it and why it feels the market is tip-toeing around the inconvenient truth that stocks are "fairly highly valued."
Day traders are going to take what the tape gives them, which is fine, but investors have to take into account that they are starting from a point of high valuation that might not pay off for some time, so to speak, if the stronger earnings growth embedded in the high multiple does not materialize.
So far, though, so good, which is why there is more churn than burn in the stock market.
To that end, Micron (MU) had an impressive earnings report that also featured better-than-expected fiscal Q1 guidance. Its stock is down 0.3% in pre-market action, but bear in mind that shares of MU had risen 40% since the start of September. A lot of good news was baked in ahead of the report.
The mega-cap stocks are mostly higher in pre-market trading, including Amazon.com (AMZN), which is up 1.5% following a Wells Fargo upgrade to Overweight from Equal Weight. Elsewhere, Alibaba (BABA) is breathing more life into the AI trade. It is up 8.6% after announcing plans to increase its spending on AI models and introducing a new version of its large language model.
The corporate news cycle, overall, is relatively quiet this morning. The same goes for economic reporting, although the August New Home Sales Report (Briefing.com consensus: 650K; prior 652K) will be released at 10:00 a.m. ET. That report will get some added attention, as will the price action on today's tape and whether it is adhering to another successful buy-the-dip approach.
