After a celebration of much better-than-expected jobs news on Friday, stocks are set to open higher again this morning. It isn't just the economic data that are driving the positive sentiment, there is optimism that COVID-19 is under control and that the economy will continue to reopen at a brisk pace.
One of the ironies of the nationwide protests that occurred this past weekend is that it is conveying the message that it is safe to gather in crowds and be in public. That may turn out to be a mistake at some point, but the view seems to be that life must go on and important issues dealt with despite the issue. It took a difficult social issue to elevate that thinking, but it now seems to be applied to economic issues as well.
There is much talk that the jobs report overstated the improvement in employment. The Department of Labor noted a 'misclassification error' that pushed the overall unemployment rate three percentage points lower than it would have been. The adjusted unemployment rate would have been 16.3% rather than 13.3%, but that was still an unexpected improvement over the 19.7% rate reported in April.
The bears are focused on economic news of this sort and are being crushed by runaway momentum while they complain. For weeks now critics and skeptics have been trying to reconcile the market action with the likely economic slowing that is expected, but have had no success.
There continues to be rotational action under the surface as the FAANG names lag and money flows into groups like airlines, cruise ships -- and bankrupt car rental companies such as Hertz (HTZ) .
'Fear of Missing Out' (FOMO) is taking two forms right now. The first is fear of missing out on the continuation of a general market uptrend as the economy improves and the second form is fear of missing out of the wild speculative action that is occurring in smaller 'junk' stocks and has been driving an unusual spike in overall market volume.
The great challenge of this market for many market players is trying to time when there will be a pause or some corrective action. Those that have been hesitant to fully embrace this move are feeling trapped and are puzzled about whether they should just capitulate and chase things higher like so many others seem to be doing.
My best advice for those looking for a pullback is to focus on price action rather than negative arguments. Watch for an intraday reversal after a strong start and also watch for a weak close. When we see that sort of shift, then the potential for some downside should increases.
Currently, there are two types of FOMO at work and they are causing chasing of airlines, cruise lines and indices. It is easy action to question, but logic isn't what is driving this market.