The indexes enjoyed another day of sizable gains, but the action under the surface on Tuesday was totally different than what occurred on Monday.
What is most apparent is that breadth is substantially stronger. On Monday, breadth was only slightly positive, but on Tuesday, it was more than 5 to 1 positive. New lows dropped sharply to just 230 names from over 700 Monday.
Unlike on Monday, Tuesday's action was mostly driven by individual stock-picking rather than by the indexes. There were well over 100 stocks on Tuesday that gained more than 10%, while on Monday, there were only a dozen or so.
There was also a very big difference in the macro action. Bonds jumped sharply higher as yields fell. The bounce started early in the day and then gained traction as data showed that home prices had declined and that consumer confidence was falling.
This is proof that the Fed's hawkishness is having an impact and increases the likelihood that there may be a pause in rate hikes early next year. There is a growing belief that the hike in December may drop to 0.50% from 0.75% in November.
That is the explanation for the strength, but at this point, it is still just another bear market bounce. It may continue to run, but there are some big earnings reports coming up, and there is going to be a shift in focus from inflation to slowing economic growth.
Microsoft (MSFT) earnings are hitting. The company had small beats on the top and bottom lines, but the stock is giving back Tuesday's gains in the after hours.
Alphabet (GOOGL) missed on both the top and bottom lines, and the stock is trading down about 5% on the news so far.
There are a number of other reports being issued Tuesday evening, and so far, the Nasdaq 100 (QQQ) has given back a bit less than half of the 2% gain that it had at the close.
Conference calls will be key, but so far, it doesn't look like there are any big positive surprises from the heavyweights.
Have a good evening. I'll see you Wednesday.
