Happy Holidays And This Is What Makes A Market

Happy Holidays And This Is What Makes A Market image

The State of the Market:

Stop me if you've heard this one before. Stocks have been rallying lately on word that Mitch McConnell's gang isn't planning on heading home for the holidays without a stimulus deal. Well, that and the fact that the FDA is about to approve a second COVID vaccine for emergency use. While both are clearly constituents of the good news category, investors can't be blamed for asking, how many times stocks can advance on the same headlines?

In terms of positive market drivers, our heroes in horns remind us that there are a couple of other things at work here worth noting. First, there is a little thing called "performance anxiety," which is a kissing cousin to FOMO (Fear Of Missing Out). There is positive seasonality - as in the traditional "Santa Claus" and "Year-End" rallies. There is the idea of money flows (managers don't want to be caught with too much cash on their books with the S&P up 16%). And one of the old standby's in the bull camp, TINA (There Is No Alternative) - thanks to rates remaining at/near generational lows.

But... With all that good stuff supporting them, the bulls haven't been able to make much headway on the blue-chip indices such as the Dow and S&P 500. Our furry friends in the bear camp opine that this is due to the ideas that (a) stocks are overbought, (b) sentiment is too positive, (c) valuations are in the stratosphere, and (d) the current rally is "pulling forward" gains from next year based on stuff that hasn't happened yet (aka, stocks are discounting positive expectations).

It is said that this is what makes a market. And with both teams having decent arguments, the S&P appears to be caught in another sideways pattern (see chart below). Which, of course, is better than the alternative to what tends to happen whenever stocks experience an eye-popping joyride to the upside. As one of my colleagues put it yesterday, "It looks like sideways is the new down."

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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