There is a tendency to believe that news headlines drive the market action when the reality is just the opposite. The news will be spun in a positive manner if the price action is positive and just the opposite when the price action is weak.
The current environment is a particularly good example. After the events that occurred on Wednesday, the easy headline is that an invasion of the capital has created fear and uncertainty in the stock market. That headline doesn't work too well when the S&P 500 finished the day with a gain of 0.6%.
So how do we explain this positive price action? The answer is that the market is looking ahead to greater stability and certainty now that the Trump presidency is coming to an end, and the last obstacles to the Biden transition have been overcome. While there might be some concerns about Democratic policy down the road, the market likes the idea of some immediate fiscal stimulus and infrastructure spending.
It really doesn't matter what the explanation is for the continued positive price action. The reality is that the great stock picking and positive momentum that I've been yammering about for so long continues, and there is no indication yet that it is about to end. Market players are still trying to put capital to work, and they are focusing on individual stocks rather than the indices.
One major consequence of the Georgia election is that there is a furious rotation into stocks and sectors that are viewed as likely beneficiaries of Democratic policies. The most obvious are cannabis and solar energy. More indirectly, stocks that benefit from higher interest rates and inflation are also seeing a boost based on the theory that more spending will create inflationary pressure. That is good for banks (XLF) , gold (GLD) , and bitcoin (GBTC) .
There is quite a bit of positioning taking place under the surface, and that is going to continue as we move into the fourth-quarter earnings season in a couple of weeks. The bears are still convinced that a 'day of reckoning' is fast approaching, and they are likely to be even more convinced of that as positive seasonality comes to an end.
Currently, the most important thing to keep in mind is that stock picking is still working very well. My plan is to stay with it and to keep pushing as long as there are pockets of good momentum to trade.
Don't let the news flow mislead you. What is most important is price action.