Here’s what’s behind the Monday sell-off, including one unusual and new reason

This is the daily notebook of Mike Santoli, CNBC’s senior markets commentator, with ideas about trends, stocks and market statistics. The tests of the summer rebound in stocks are coming from all the familiar sources. After stopping on a dime at the 200-day moving average, the S & P 500 has pulled back to below the “first support” area around the early-June highs, losing a chance to show that only a minimal pause would be needed to refresh the rally. The index also now sits on its 20-day MA, often support for strong uptrends. Below are the 50-day average and the halfway point between the June low and August high (a bit below 4,000). As the talk of these various levels and trend angles suggests, this is a pretty tactical tape at the moment, as the market navigates a relative news lull in a hotly contested crossroads of market trends. We are in the post-options-expiration hangover and into a less-friendly seasonal period as the Street awaits the Federal Reserve’s Jackson Hole conference policy message. Yet aside from the charts and the time of year, there has been another bout of concern over European energy supplies, inflation and recession to touch off the week. It’s sending the dollar and bond yields toward their recent highs and withdrawing the help each offered to equities during the “peak inflation” relief rally of the prior two months. Equities have never been able to absorb a 3% 10-year Treasury yield without pain in recent years, and the yield is demonstrating (testing?) this pattern today. Europe typically doesn’t drive U.S. markets over prolonged periods, but obviously fits a broader recession-risk/policy-error line of concern. We’ll see if the tape might gain a bit of traction later in the day beyond the European market close. Crude oil acting like much more of a proxy for economic growth expectations (in Europe, China, everywhere) and risk appetites (and dollar strength) than a supply-constrained inflation stand-in. Working counter to natural gas, in a way, as the issues around electricity demand/pricing drive slowdown expectations and sap oil-demand assumptions. Banks participating in the broad-market downside, but they have rallied almost 1% off morning lows, as the market tries to differentiate better- and worse-positioned sectors. The Nasdaq 100 is in a somewhat tougher spot than the S & P 500, continuing to act as an amplified version of the broad market at every turn. This pullback has stranded the recent chasers of the upside stranded on a possible island up above. If not for Apple, the Nasdaq 100 would be in an even more difficult condition. AAPL’s run of outperformance has been pretty singular — not really about broader megacap growth stock revival or tech more broadly. It’s Apple on one of its streaks. Here’s a portion of the past weekend’s market column getting into the stock’s role in this market. Apple, at close to 27-times next 12 months’ forecast earnings, hasn’t been this expensive versus the S & P 500 in a dozen years. The stock, with its $2.75 trillion market value, now has a 7.4% weighting in the S & P 500, the highest of any stock in decades. This makes it larger than the energy and materials sectors combined, and nearly as large as the industrials’ 7.9% weighting. The S & P 500 industrials sector has 71 companies which employ more than 4 million people and will collect some $1.6 trillion in revenue this year. The sector in aggregate trades in line with the S & P 500 just over 18-times forward earnings. Apple is, of course, a single company with 154,000 employees, set to post $400 billion in revenue this year. What does the remarkable momentum and lavish capitalization of Apple tell us about investor priorities and macro expectations? It’s not easy to say. It’s not excitement over growth: the company forecast to have revenue and earnings growth of 4% and 6% in fiscal 2023 (which begins in six weeks). Yes, there is a perception of safety and financial quality in the name, but many comparably sturdy stocks aren’t doing much. Market breadth is weak but not a washout: 3:1 downside:upside volume. VIX has awakened with a second straight -1% S & P 500 day, though given the usual Monday upside bias not exactly a dramatic response. Credit markets are softer, spreads drifting wider, but likewise not a serious stress reaction.

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