Why This Is Unlikely to Be a Major Market Turning Point
Indexes are covering up underlying weakness as Tesla and IBM issuing disappointing earnings, but there are a host of tailwinds for stocks now and on the way.
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Very poor action in growth stocks and leading speculative names was hidden by the indexes on Wednesday. While the S&P 500 slipped 0.5%, while the Innovator IBD 50 ETF (FFTY) ), which tracks leading growth stocks, was down nearly 3%. The Russell 2000 (IWM) declined 1.5%, with sectors such as gold, bitcoin, quantum computing, data centers, and nuclear energy experiencing significant declines.
It didn’t help matters that Netflix (NFLX) posted a poor earnings report, but that didn’t have a significant impact on the indexes. On Thursday morning, both Tesla (TSLA) and IBM (IBM) are trading lower following their earnings reports, but so far, the indexes are holding steady.
News that President Trump is imposing substantial new sanctions on two of Russia’s biggest oil companies is boosting the oil sector. The sanctions are designed to deter India and China from buying Russian oil. Europe is adding to the pressure with restrictions on LNG imports from Russia starting next year.
Recently, there has been a very chaotic mix of action, with some of the most expensive and extended stocks suffering deep corrections while the indexes remain relatively unscathed. Earnings reports have been strong until Netflix, Tesla, and IBM, and that may raise worries about the onslaught of big-cap tech earnings that will hit next week.
There is bounce action early on Thursday with gold, bitcoin-related, and quantum computing seeing interest, but there has been substantial technical damage to some leading names, and it will take a little time for charts to recover.
The good news is that the market has needed corrective action for a long time to wring out some of the froth and excess. There are still some very extended charts, but things are looking healthier after some deep pullbacks.
The big question that investors are pondering is whether this is the beginning of a major market top. While that is possible, I believe that it is unlikely. Interest-rate cuts are coming, and the AI revolution is far from over. The economy remains healthy, although there is some slowing in employment. Inflation appears to be under control, and the tariff issue is being digested without much disruption. Combine that with positive year-end seasonality, and conditions for more upside look quite good.
My game plan is to stay focused on stock picking. I’m particularly interested in buying pullbacks in names with strong fundamentals that are likely to post good third-quarter earnings reports.
At the time of publication, Rev Shark had no positions in any securities mentioned.
