Earnings season becomes more interesting today as Netflix (NFLX) and IBM (IBM) report after the bell. There has been remarkably sedate market action lately, despite an abundance of potential catalysts. Market players seem to be waiting for something of significance to happen and are not reacting much to headlines.
Yesterday, there were important retail sales numbers, headlines from Trump about China trade and headlines from Powell about potential interest rate cuts. It produced some intraday movement, but it was remarkably mild. The index ETFs are experiencing some of the lowest volume in a while and the intraday trading ranges are very tight.
As earnings season starts, the bearish narrative is that growth is going to be the slowest in years. That has been well anticipated and so far the reaction is a shrug. The indices might be lifeless, but they are holding steady. Part of the confidence stems from the likelihood of a July interest rate cut and continued central bank dovishness.
When the market is trading in a narrow range like this, there is a tendency to see what you want to see. The action isn't overtly negative or positive, but if you have a mental bias then you can find good arguments to support that view.
One of the worst things you can do in this sort of market is hold a dogmatic market opinion. It is fine to formulate a thesis, but keep an open mind and be willing to amend it as conditions change. Many traders, like me, are rooting for increased volatility. It should increase but it is primarily just a matter of staying patient.
In this sort of market, the business media love to put up blaring headlines about what will happen next. Grand predictions attract attention, but it is exactly the wrong mindset to cultivate. The way to approach this market is to stay highly reaction to changing conditions rather than try to predict what is going to happen next. A headline or news can hit at any time and change the entire complexity of this market. Rather than guess, stay ready to react.
It is a peculiar market environment right now -- and not one that I can recall lasting for long. The indices are hovering near all-time highs and technical conditions are good, yet the action is very mild and there is little emotion. There are plenty of potential catalysts such as earnings, the Fed and China, but no strong trending action.
The one great certainty about the market is that things will change. Our job is to be mentally prepared to adapt as that occurs.
We have a slightly positive start to the day, although a negative reaction to Bank of America (BAC) earnings is causing a little pressure.