The indices stumbled a little last week but continue to hold up relatively well. The thing that has been most notable about the market action is that there has been reluctance to embrace negative headline news. The number of Covid-19 cases continues to accelerate in many states and across Europe. Countries such as France are shutting down economic activity again but the market appears to be unconcerned.
There are a couple reasons for this. First is that the death rate has not been jumping at the same pace as the number of cases. There are better treatments now and more vulnerable folks appear to be taking precautions. There also is hope that a vaccine will be coming within months and other treatments appear to have worked well for President Trump. Many people simply appear to be eager to return to normal life and that is reflected in good retail sales and other economic indicators.
There is still the risk that a second wave of Covid will hit the market at some point, but the price action does not indicate much willingness to embrace a pessimistic view. The arrival of vaccines likely will help prevent the narrative from developing negatively as it did back in February.
Another issue the market is not reacting to at this point is the election. This election is not going to become any more civil and there is a very high risk that it could be unresolved on Election Day. There is no doubt the market would not react favorably to that sort of chaos, but that problem has not yet been anticipated.
The good news is that market players continue to focus primarily on fundamentals and technical setups. Money is flowing to individual stocks based on their merits, which has been very good for stock pickers. We have not seen the sort of correlated selling that tends to occur when a major macro narrative starts to take hold.
Companies such as IBM (IBM) and Netflix (NFLX) report earnings this week, which should provide some better insight into the level of expectations that exist. Technology stocks have been running up and the danger of a "sell the news" reaction is fairly high.
Economic news out of China was slightly below expectations, but the numbers show that the Chinese have returned to growth and that is helping to provide some optimism.
My game plan continues to be largely the same as it has been for a while now -- focus on stock picking, manage positions closely, and don't waste time trying to call market turns. As long as selling pressure remains uncorrelated I will stick with a bullish bias.