The market is a steamroller Tuesday as it barrels upward on very positive breadth. The action today is a very good illustration of a number of dynamics.
First, as I discussed in my opening post, we are climbing a Wall of Worry. There is a high level of cash as many market players have not embraced the recent rally. They are worried that whatever it was that drove the market down in the fourth quarter is still lurking. There is a large supply of bears who are convinced the economy will start slowing and that a recession will follow.
There is a long list of worries. But when the market goes up, like it is Tuesday, then those folks that are holding idle cash start to worry they are wrong. They start to inch in and do more buying, and that buying causes stocks to rise more, which, in turn, causes them to worry more about not having more money invested.
Climbing the Wall of Worry goes hand-in-hand with Fear of Missing Out (FOMO). FOMO intensifies as market strength continues. Nothing is worse for a money manager than lagging their benchmark index. If you are lagging, you have no choice but to put more money to work. That causes the climbing the Wall of Worry thing to develop further too.
Another dynamic this sort of action produces is aggressive dip buying. Many fund managers hate the idea of buying strength. They constantly want to lower their basis. They want pullbacks in good stocks. When momentum is strong, those pullbacks are shallow and the dip buyers are typically more aggressive.
Climbing the Wall of Worry, Fear of Missing Out and dip buying are all working in tandem right now to create very strong momentum. Action like this tends to stay sticky to the upside, so don't be in a rush to fade it. A news headline like the border deal falling apart could cause a shift, but without any negative headlines the path of least resistance is up.