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There are some weeks when we need to search for potential catalysts. This is not one of them. We get the peak of earnings season, featuring five of the seven largest US companies on Wednesday and Thursday, ongoing trade negotiations while the President holds high-level meetings in Asia, and, oh yes, an FOMC meeting. One might think that traders would display some caution ahead of this deluge. Nope.

With momentum in command of market psychology, traders are willing – if not bending over backwards – to focus on news that fits their preferred narrative. One of the most reliable types of stories has dominated the news flow this morning. Traders are primed to react positively to anything that seems to advance relationships with key trading partners, and to be sure, there was no shortage of optimistic reporting on that front. There is understandable enthusiasm ahead of bilateral meetings between President Trump and major Asian counterparts, including Chinese Premier Xi.Cooler tensions and warmer relationships are indeed a reason for a bump, especially with our third-largest trading partner.

Never mind that the President also slapped a 10% supplemental tariff on goods with Canada this weekend because of his dissatisfaction with an ad campaign by one of its provincial governments.They’re only our second-largest trading partner, so it’s understandable why this development barely enters the market’s vision, right? 

Moving over to earnings, we have more than 170 S&P 500 (SPX) companies reporting this week.That’s over one-third of the total, representing more than 40% of the index’s weight.The combination of Microsoft (MSFT), Alphabet (GOOG, GOOGL), and Meta Platforms (META) reporting after the close on Wednesday represents more than 14% of SPX, and the pair of Apple (AAPL) and Amazon (AMZN) reporting after Thursday’s close is another 10%.  For the Nasdaq 100 (NDX), those are nearly 18% and more than 13%, respectively.  Any of those companies’ results have the potential to move markets up or down.

An FOMC meeting is typically the highlight of any week that hosts one. Yet this week, options appear to be pricing in a roughly +/- 1% move for Fed Day.That is a bit below the long-term average move, but not egregiously so.Market consensus is for another 25-basis point cut this week, and there are valid expectations that the FOMC will also signal an end to its long-term program of quantitative easing.All of those would understandably be considered market friendly.

The relatively low readings of VIX and VIX9D imply that traders are unconcerned about the effects of these various major news items. For example, while any single megacap stock could move markets, they could, of course, also roughly offset each other’s effects rather than magnify them.The trade talks could go as smoothly as hoped, and Chair Powell could say nothing to upset market expectations for future accommodative policies. 

But will they? We’ve seen several trade deals that were described as definitive turn out instead to be merely frameworks for future talks. The Fed Chair has a tendency to be market friendly in tone, if not always in substance.A lack of clarity stemming from the unavailability of government data could introduce some skepticism into his tone.And of course, the various corporate earnings – and more importantly, guidance – could prove to be less than hoped. 

Might this be a time to be a bit contrarian? The lack of skepticism, let alone fear, expressed by traders has my spidey-sense tingling. Stocks have zoomed up a wall of worry, Spiderman-like, to reach their current heights. It is difficult to consider what might transpire if that wall is gone. 

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