There are two basic types of markets. The first is one that is driven primarily by the indices. In those sorts of markets, the primary consideration is news headlines and issues like the Fed or inflation. The merits of individual stocks don't matter nearly as much.
The second sort of market is one that is driven primarily by individual stocks. The indices don't have a strong trend and there is no major news that is driving the action. Market players focus on finding stocks with good technical patterns and strong fundamentals,
Recently we have enjoyed a stock pickers market. Although there have been concerns about the potential for inflation and some other macro-economic issues, there has been little reaction by the major indices. Instead, the focus has been on finding the individual stocks that are in favor. The meme stocks have surged, but there also has been a strong move in small-caps. The Russell 2000 ETF has outperformed recently, which was due in part to the announcement of its annual reconstitution.
While stock picking is offering some good opportunities for stock pickers, the challenge of this sort of market is that we can never know when the big picture considerations might take hold again. This week the Federal Open Market Committee announces its interest rate policy on Wednesday at 2 pm ET. The market has embraced Chairman Powell's assurance that a rise in inflation is 'transitory,' but this morning the WSJ writes, "Federal Reserve officials could signal this week that they anticipate raising interest rates sooner than previously expected following a spate of high inflation readings."
If that does occur, this stock pickers market could quickly become one that is index-driven instead. That is the danger, but so far, the price action is not reflecting any great fear. The bears may even argue that there is unhealthy complacency, but we will have to watch for a shift in market character.
The indices have lacked volatility lately, and that is helping the stock picking. It continues to be a good environment for aggressive trading, but we will need to watch to see if worries about inflation start to have an impact. So far, the bond market is not indicating any great concern, and that is helping the mood.
We have a quiet start in equities again. Bitcoin has jumped back up after some positive comments by Elon Musk, and that is helping the speculative mood.