Mid-day: Hooked on a contrarian feeling

Each of the major indices are up more than 1.0% after an unassuming start. The S&P 500 is up 1.3%, the Dow Jones Industrial Average is up 1.2%, and the Nasdaq Composite is up 1.9%.

Ten of the 11 S&P 500 sectors are trading higher, taking the benchmark index back above its 50-day moving average (4416). The consumer discretionary sector (+2.5%) stands atop the standings with a gain over 2.0%, while the energy sector (-0.9%) sits this one out amid weaker oil prices ($102.04, -5.57, -5.2%).

There wasn’t a lot of trading conviction early in the day, as interest rates continued to push higher, earnings reports were met with lackluster reactions, and St. Louis Fed President Bullard (FOMC voter) said the fed funds rate should be at 3.50% by the end of the year.

Rates are still higher, but the stock market isn’t getting hung up on that, perhaps as a contrarian mindset takes fold given how low investor sentiment had gotten. The meaningful pullback in oil prices has likely supported the cause.

The 2-yr yield is currently up seven basis points to 2.54% while the 10-yr yield trades higher by four basis points to 2.90% after flirting with 2.93% in the wake of better-than-expected housing starts and building permits data for March. Note, the modest month-over-month increases were driven entirely by multi-unit activity.

Regarding earnings, Johnson & Johnson ( JNJ 183.25, +5.62, +3.2%), Travelers ( TRV 175.60, -9.62, -5.2%), Lockheed Martin ( LMT 464.20, -3.24, -0.7%), Halliburton ( HAL 41.19, -0.45, -1.1%), and J.B. Hunt Transport ( JBHT 172.23, +0.78, +0.5%) are trading mixed following their reports.

JNJ is the standout, setting an all-time high even though the Dow component lowered its FY22 EPS guidance below consensus. Netflix ( NFLX 350.46, +12.60, +3.7%), which reports earnings after the close, is up 3.7% as the bullish bias in the market feeds into a buy-the-dip mindset.

Reviewing today’s economic data:

  • Housing starts increased 0.3% month-over-month in March to a seasonally adjusted annual rate of 1.793 million units (Briefing.com consensus 1.750 million) while permits increased 0.4% month-over-month to a seasonally adjusted annual rate of 1.873 million.
  • The key takeaway from the report is that the upside was driven entirely by multi-unit activity. Starts for single-family homes and permits for single-family homes were down 1.7% and 4.8% month-over-month, respectively, reflecting the challenges builders are facing with supply chain issues, rising costs for land and labor, and the dent in homebuyer confidence and affordability that has stemmed from rising mortgage rates.