After the July 4 holiday, the market looked tired and hungover by Tuesday morning. Oil fell sharply as growth fears continued to build, and the euro collapsed against the dollar as a recession looks like a near certainty in Europe.
Despite the ugly start, we saw some surprising strength in some of the worst sectors. Biotechnology and growth stocks, which have been leading this bear market for months, attracted bargain hunting, and as the day progressed, the buying spread into big-cap technology and a wide variety of other "junk" names.
A good illustration of the sorts of stocks that were finding interest today is Peloton (PTON) , which was at new 12-month lows last week and led the Nasdaq 100 exchange-traded fund (QQQ) with a gain of 13% today.
It is likely that some of the action today is the unwinding of long energy/short biotech and growth, which worked well up until a few weeks ago. The collapse of oil caused that trade to be closed out and gave a nice boost to the biotech indexes and the ARK Innovation ETF (ARKK) .
Some of this action is due to short-covering, and some of it is bargain hunting, but it is tough to chase as it is not based on strong technical patterns. There is likely some "fear of missing out," but there doesn't seem to be much conviction that the market is about to run away to the upside, as we head into earnings season.
The great difficulty that this market has been struggling with is trying to discount all the economic uncertainty. We are now transitioning away from inflation worries and into greater concern about economic slowing. The market seems to have less fear of recession than inflation, but there are many pundits who think that earning's expectations are still too high.
Have a good evening. I'll see you tomorrow.
