Here's What's Driving the Latest Market Surge

The S&P 500 and Nasdaq 100 QQQ have been up six days in a row and nine of the last 10 sessions, but that didn’t matter on Wednesday as they jumped higher once again and are now even more overbought. This time, the Russell 2000 and DJIA joined the party with solid breadth of around 6,600 gainers to 2,650 decliners. New 12-month highs piled up as well, with over 900 names hitting new heights.

There are a couple of things driving this move. The first is simple momentum. Cash is flowing into the market with the fifth largest week of inflows since 2008. Most of the money continues to pour into technology names, which means the Magnificent Seven.

The other thing that is driving the market is growing confidence that the Fed will start to cut rates in September. The market has been consistently wrong about rate cuts for over a year, but this time, investors are betting that a cool CPI report on Thursday will help close the deal on a rate cut. Fed Fund Futures reflect a 70% chance of a cut in September, and that will increase on soft data.

Investors will also be looking at weekly unemployment claims on Thursday to further confirm the slowing in the labor market. Jerome Powell didn’t have much new to say, but he did indicate that the labor market is cooling off.

The good news Wednesday is that the action was not as lopsided for a change. It was a broad advance and looked more like a real bull market. The bad news is that the indexes and the Magnificent 7 names are extended and expensive. That doesn’t matter right now, but with earnings reports on the horizon, some folks may start to wonder why Apple AAPL has a trailing P/E of 36 and single-digit growth.

Economic data and the start of earnings season should give us increased volatility, but the market seems determined to keep things difficult by just moving in one direction.

Have a good evening. I’ll see you Thursday.

At the time of publication, Rev Shark had no positions in any securities mentioned.