Market players continue to find good news to celebrate, which is covering up some mixed price action under the surface. On Tuesday it was an announcement that a high-level U.S. delegation is heading to China for trade negotiations that triggered another buying surge. This news was out early but when it was confirmed by the U.S. it started algorithmic buying that drove the indices to new highs.
In addition to the China trade issue, earnings have been generally good. The bears' narrative has been that weak quarterly reports would more than offset the benefit of interest-rate cuts by the Fed. That simply has not been the case. Earnings have been viewed as solid, with Texas Instruments (TXN) being another good example. TXN is gapping up over 5.5% and moving to multi-year highs Wednesday morning as semiconductors lead the market.
The market currently has the benefit of both good earnings growth and an 80% probability of a quarter-point rate cut next week. There is even a 20% chance the Fed could cut by a half-point.
It is a perfect mix for the bulls, with good earnings news and the extra fuel created by dovish central banks. However, despite this strong combination, there has been surprisingly dull action in much of the market. Volume has been extremely light and the trading ranges narrow. Small-caps have struggled.
Although the indices are close to all-time highs, only about 55% of stocks are over their 200-day simple moving averages. Back in September 2016 over 75% of stocks were over that level so there has been underperformance by many stocks. That weakness is being offset by bigger cap names like Microsoft (MSFT) , Coca-Cola (KO) and Bank of America (BAC) .
There is some pressure Wednesday morning caused by an announcement that the Department of Justice will begin a wide-ranging antitrust investigation into some of the leading big-cap technology firms such as Amazon (AMZN) and Alphabet (GOOGL) but there is no time frame and doesn't come as a huge surprise. The market will likely digest that news quickly and focus again on the Fed and earnings.
There is still a slew of market-moving earnings reports coming and things could shift quickly if they are disappointing. Still, the theme so far is better-than-expected and positive reactions. When that is combined with the celebration of a dovish Fed, there is little reason to fight the positive trend.
We have some weakness Wednesday morning mainly due to the DOJ antitrust news and there is likely to be endless coverage of Special Prosecutor Mueller's congressional testimony, but overall the market remains in good shape, although better action in small-caps would help.