It was a powerful week for the stock market, with the DJIA up 2.6%, the S&P 500 gaining 3.5% and the Nasdaq leading the charge with a big 6% move. What was particularly impressive, however, was that so many stocks traded as if they were in a traditional bull market.
This has not just been counter-trend bounce action in the context of a bear market. This market has traded like it is in a solid bull trend.
Of course what makes this so perplexing -- and probably contributes to the lopsided positive action -- is that it is so difficult to reconcile the tremendous economic damage being done with the roaring stock market. The Fed is receiving most of the credit but there is also significant optimism that the economy will start to accelerate and there will not be any major rebound in Covid-19 cases.
Whether the optimism is warranted or not, we will have to see but for now, market players are willing to suspend their skepticism and buy stocks that are acting very well. Trying to fight this price action just isn't working very well, although the arguments do seem compelling.
Next week earnings season continues with a slew of small-cap names reporting and we should also start to see some indications of how well the reopening of the economy works. Probably the biggest danger for the market is any indication of a notable rebound in coronavirus infections. The Fed can repair a lot of economic damage but the assumption right now is that there isn't going to be another big setback.
This is a market environment unlike anything we have seen before. There is a tremendously negative economic picture, unprecedented monetary and fiscal support combined with "fear of missing out" and very strong price action. It can't last this way forever but it certainly can last longer than what we think is reasonable.
Have a great weekend. I'll see you on Monday.