Positive News Flow Is Supporting Strong Market Momentum and New All-Time Highs
Extended markets tend to generate FOMO and often become even more extended. Here's what could cause a shift.
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Strong earnings from banks and a rotation into small-caps triggered a burst of momentum that drove the S&P 500 and DJIA to new all-time highs on Monday. To paraphrase Sir Isaac Newton, a market in motion stays in motion until acted upon by an outside force. The question now is whether there is a news event that will shift the trajectory of the market’s momentum.
The most obvious news that could shift the market action is earnings. There are more banks and Netflix NFLX reporting this week that will generate a reaction, but it is the reaction to big-cap technology that reports next week that has the greatest likelihood of impacting market momentum.
Technically, the indexes are becoming extended, but extended markets tend to generate fear of missing out and often become even more extended. There are a few themes that are adding some volatility, such as give-backs in China, as concerns build that the proposed stimulus may not be enough to deal with economic weakness, and weakness in oil, as worries about the Middle East decline a bit and demand starts to ease.
The main issue that is benefiting the bulls right now is the Goldilocks economic narrative. Inflation is not too hot, and economic growth is not too cold. Market players feel quite happy with the Fed and the likelihood of a couple of quarter-point rate cuts this year and even more in 2025.
There are a few worries about a rebound in inflation, and the poor action in bonds is worrisome, but the market has not been worried about an uptick in rates. Bonds are bouncing back up early on Tuesday after the bond market being closed Monday for a holid,ay.
While technically, it remains very challenging to find good entry points and to put more cash to work, market players are chasing names such as Nvidia NVDA and semiconductors, which are exhibiting good relative strength.
Until the bears can find a good excuse for some selling, the market momentum will be hard to kill.
At the time of publication, Rev Shark was long NVDA.
