Optimism Is in the Air — But the Market Is Not Totally Out of the Woods

For the second day in a row, the market struggled early, gained strength, and closed near the highs of the day. The intraday reversal on Thursday wasn't as energetic as the turn on Wednesday, but strong closes are typical of bull markets. Breadth was better than two to one positive, and the number of new 12-month highs was close to 500.

The main reason for this bullish action is that investors are again embracing the Goldilocks economic narrative. The market has sold off when investors become nervous about growth, but the slightly hotter-than-expected CPI and PPI reports have created increased optimism that the Fed is not behind the curve and that there will not be a recession.

When economic optimism is in the air and there is less concern about inflation, the Magnificent Seven names tend to lead. In addition, positive comments from CEO Jensen Huang of Nvidia NVDA have reversed some worries about the demand for AI infrastructure.

While technical conditions look much better than last week, the market is not entirely out of the woods. Next Wednesday, the Fed interest rate cut will likely increase volatility, and the discussion will immediately turn to the number of future cuts. There is still much debate about the economy's health, and each piece of new data will be weighed.

Market players are still worried about negative seasonality, and if there is a big run-up in the indexes into the Fed rate cut, then the danger of a sell-the-news response will be enhanced.

I continue to have trouble putting more cash to work, but I'm not afraid of missing out at this point. I expect plenty of good charts to slowly develop as we move into the Fed rate cut process.

Have a good evening. I'll see you Friday.

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