Political Chaos Fuels a Market In Transition

The market is seeing only minor movement on Monday morning despite the dramatic political events that occurred on Sunday. Kamala Harris is now the leading Democratic presidential candidate after Joe Biden was forced to withdraw.

Groups and sectors that are seen as impacted by the election are not making any large moves. Bitcoin IBIT, solar energy TAN, and cannabis MSOS are a few areas that traders are watching, but so far, nothing significant has happened.

Although political events haven’t created any significant movement so far, they have added an element of emotion to a market that is showing signs of undergoing a significant transition. The likelihood that the Fed will cut interest rates in September has become a near certainty, and money has been rotating out of big-cap technology names at an increased pace. Netflix NFLX posted a solid report on Thursday night but sold off anyway.

The pace of earnings reports picks up this week, with the biggest names on the agenda being Alphabet GOOGL, Tesla TSLA, IBM IBM, and Texas Instruments TXN. The big question is whether expectations are too high and will result in a greater likelihood of a sell-the-news reaction.

For many months, the indexes moved higher on narrow big-cap strength. It wasn’t a real bull market because so few stocks participated, but the business media treated it like it was one. Recently, smaller stocks have come alive, and we have had the first real signs of broad strength and a real bull market.

The issue now is whether that transition will continue to evolve. Three things will impact it: earnings reports, interest-rate cuts, and the strength of the economy. They will all come into play and determine how rotational action develops.

It is quiet on Monday morning, but conditions are ripe for the market to see a major change in character.

At the time of publication, Rev Shark was long MSOS.