Why a Downside Move Would Be Healthy for the Market
We're seeing some shifts in trends -- including intraday gains -- as earnings loom. Also, let's check Nvidia's slide today.
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For many years, most of the gains in the market occurred overnight. Stocks would gap up at the start of the day and then do little during the trading session. If you bought at the open and sold at the close, there was massive underperformance.
That has changed in 2025. Now, most of the gains in the indexes occur intraday. Buying the open and selling the close is outperforming buying the close and selling the next morning. It isn’t clear what has triggered this shift, but it is very easy to see if you look at candlestick charts with many green candles.
We are seeing this phenomenon on Tuesday after a shaky open. Stocks have found their footing and are trading higher on some economic news that isn’t strong but isn’t that bad.
There are two other issues at work on the first day of the new month. First is the reversals of markup caused by window dressing and index rebalancing. Second, typically, there are inflows on the first day of the month caused by automatic deposits to 401 (k)s and various fund vehicles that provide some upside pressure. New month inflows are put to work immediately, but this quarter, the end-of-the-month markups were much more pronounced than usual, so there is a greater offset.
At this juncture, some downside is the healthiest thing the market could do. Finding good entry points when the major indexes are up six-straight sessions in a row is very difficult. Even if you do like buying new highs, it is tough in this sort of market to keep on chasing.
There are several big catalysts on the horizon. The first is earnings season. I plan on positioning in some smaller stocks in front of their reports. Quite often, smaller stocks will languish and offer some decent entries in front of good earnings news. There is still time for this, but I am working on refining my list of stocks that I believe will put up some good numbers, but are not appreciated by Wall Street.
Another big potential catalyst that is coming up quickly is the economic impact of tariffs. Trump’s July 9 deadline is coming up quickly, and if deals are not done, there is likely to be some concern about the economic impact. The economists have been dead wrong about tariffs so far, but higher effective tariffs this year still could trigger inflation and cut company profits and consumer spending. Goldman Sachs analysts state that the effective U.S. tariff rate based on policies that have been announced has risen to 13% from 3% at the start of the year.
The economic data will be particularly important because it will influence when the Fed cuts rates. Powell is driving Trump crazy with his insistence that more data is needed before he is comfortable with a rate cut. Once the Fed starts cutting rates, there will be a major shift in market action.
A third issue that will determine the market’s trajectory in the second half of the year is whether AI and big technology continue their strong leadership. AI interest has been ramping up recently, and there has been increased confidence that this is a multi-year theme that will more than offset the tariff and economic worries.
For now, the market needs some technical digestion. Charts need development and better foundations as we move into earnings season, or there will be a danger of sell-the-news reactions.
Nvidia NVDA is suffering a healthy hit today, but this is a name that I want to own into its next earnings report. I’m not in a rush to buy, but it is a good sign that some of the frothy action is relenting.
At the time of publication, DePorre was long NVDA.
