The best news on Thursday wasn't that the market ignored trade war worries once again, but that some strong leadership reappeared. The market has been plagued recently by rotational action and a lack of follow-through, but the Nasdaq regained its leadership role and small-caps were not far behind following a gap-down open on trade war worries.
The most interesting thing about yesterday's action was the nature of the stocks that led the market. They were the bigger-cap, high-beta growth names that tend to be the best-performing stocks in a strong trending market. Apple Inc. (AAPL) was at the top of the heap as talk about its $1 trillion market cap dominated the headlines, but other names such as Tesla (TSLA) , Square Inc. (SQ) and Fortinet Inc. (FTNT) made very strong moves that attracted momentum buyers.
The technical action in the Nasdaq was strong enough for Investor's Business Daily to proclaim that the overall market is back in an uptrend.
Interestingly, the Dow Jones Industrial Average lagged as money rotated back into growth names. The big issue now is whether this action will be sustained. That has been the big issue for a while and is going to determine the short-term health of the market.
Action such as the market enjoyed on Thursday generally tends to create underlying support. Dip buyers were well-rewarded for buying weakness, so there will be an inclination to try it again. Also, many market players will be disappointed that they are underinvested. Underinvested bulls often hesitate to chase a market but will look for entries on pullbacks instead. That creates good support and keeps the uptrend going.
Earnings season is almost complete and we are entering one of the slowest periods of the year. The Fed is on hold until its next meeting in September, so the main headlines that are likely to dominate will be related to trade wars and the usual political battles. The market has shown us repeatedly that it is not inclined to embrace the negative narrative, and you can be sure that traders will be looking for opportunities to buy dips once again.
There is a jobs report coming up at 8.30 a.m. ET that should show robust growth once again. The thing that is more important than usual now is the rate of wage growth. Inflation has become more of an issue lately, but there still aren't enough signs to cause any concern that the Fed is likely to accelerate its rate hikes.
It is anticipated at present that the Fed will raise rates twice more this year and then once early in 2019. The market is comfortable with that scenario, but if the level of hawkishness increases it is going to cause some concern.
This market is supported with a foundation of strong economic growth and a lack of concern over trade wars or political battles. The bears keep warning us the day or reckoning is fast approaching, but until the price action shifts it is just more meaningless punditry.
We have a quiet start to the day while we await the jobs news.