Radical policy shifts have been at the heart of disconnect this year, clearly between the 'hard data' (such as the S&P back to where it was pre-Election); the Nasdaq catching back up to the comparably higher level; and the 'soft data', such as Consumer Sentiment and emptier docks in Los Angeles; as all have come together to define the chaotic behavior and unstable psychology.

I'd suggest it's not that confusing; but merely has to be sorted out. Hence the reason we didn't dare short the S&P even when looking for shakeouts; or in the wake of returns to relatively overbought technical levels. That because it's quite possible the 'tariff-related' inhibitions can go away in a 'tweet'; presuming any deal is done with China, which we believe is going to happen, and soon. I think that allows the tariff issues to work themselves out; or be ameliorated.

Market X-ray: relief rally Friday. A day or two ago I mentioned ruminations of Chinese officials being seen exiting meetings with U.S. officials; and nobody was willing to affirm that; while POTUS claimed Beijing wants deals; and the Chinese said they weren't talking. Now they admit they ARE interested in the ideas the U.S. side has; and we think that indirectly infers ongoing chatter. At the same time that's fine: I've said all along; stop calling each other names as you just figure it out behind the scenes; tell the rest of us when there's a deal.

This is part of why I have expected 'not' the heavy-handed (needlessly rude in some measure; though Trump likely heard about that and tempered his tone); nor the bullying; but rather migrating to relatively acceptable demeanor, so as to get a deal done. That is why we believe it was and is an ongoing process.

This market is entirely 'swerveable' based on trade news (or military events to lesser extent); with prospects remaining more tilted favorably than negatively.

It was a 'relief quotient', as stories began to confirm what we had only heard as background chatter; about the Chinese possibly having 'blinked' (or The White House did; you never know for sure in these situations); in line with the back-chatter we had heard ruminated about. So up we went; and that was great time to assist a handful of stocks reviving.

As for next week; the S&P multiple cannot really be expanded; too much talk of that. The reality is that 'should' we see lower interest rates and a Fed that's inclined to stop or even reverse Quantitative Tightening; that's what's needed. Part of next week's action will obviously hinge on the Fed, and tariff trade talk.

If they perform, then smaller stocks will kick-in and the S&P reliance on just a handful of mega-caps will diminish, and that's really the only path higher for a clearly extended macro Index, otherwise viewed. Our focus on Quantum, AI, as well as particularly 'application software' oriented for security and defense, continues. Most potential contract awards have been delayed by Washington, but that's due to the personnel shuffling and other delays not shifting plans.

Of course a 'Tax Bill' could indeed provide a leg-up for stocks; whenever.

So optimism prevails; while rest feels earned over this weekend. Enjoy it! 

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