After poor action last week, the market was surprisingly strong on Monday. The S&P 500 rose about 1.2%, and the Nasdaq 100 led with a gain of 1.6%. Breadth was very good at two-to-one positive, but this was mostly big cap and index-driven action with relatively quiet action in small speculative names.
There wasn't any major news flow to drive the action, and there has been increased concern about inflation in front of the consumer price index report that hits on Tuesday morning, but stocks levitated most of the day on good volume.
The best explanation for the strength is that some bears are still worried about being too negative in the CPI report. They have been burned numerous times lately when the market reacted favorably to news and data that really wasn't market-friendly.
Much of the recent market strength was attributed to short covering and underinvested bulls, and that may continue to be the justification at this point. But we've seen quite a bit of short covering already, and positioning is no longer the issue it was a few weeks ago.
I can not recall a time when there has been such a steady drumbeat of negativity from strategists and pundits. For example, Marko Kolanovic of JPMorgan said Monday that risk vs. reward was skewed to the downside, and former Treasury Secretary Larry Summers said to brace for turbulence as Fed and inflation reality come crashing in for the market.
What makes matters worse is that the primary bullish argument is based on the fact that there is so much bearishness. There isn't any upbeat economic argument at all. The argument is that everyone is already too bearish.
We will see tomorrow morning how the market deals with the CPI report. The market was very happy with online numbers recently, but will that be the case again?
Have a good evening. I'll see you tomorrow.
