Two themes have dominated the market action this week. The first is outperformance by big-cap technology and FATMAAN names. The Nasdaq 100 jumped more than 1% on Thursday and has seen signs of being the safe haven it was for most of last year.
The second theme this week has been extremely slow trading and reduced volume. Many individual stocks have lost their energy, and there have not been any strong sector themes like there were back in early February.
Thursday afternoon the action perked up a bit, and there was some strength in special purpose acquisition companies (SPACs) and a few other places. The Russell 2000 bounced back from negative territory and managed a gain of 0.85% for the day.
A week ago the big worry about the market was that better-than-expected jobs news would produce inflationary fears and weigh on bonds, but that turned out not to be the case at all. The iShares 20+ Year Treasury Bond ETF (TLT) has held up very well this week, and the worries about inflation seem to have been set aside for now.
The big puzzle is why market speculative action has slowed so much. Where did the liquidity that was driving the market go? There have been billions in stimulus payments recently, but stocks are seeing declining volume and the CBOE Market Volatility Index (VIX) is hitting its lowest level in years.
One theory is that the reopening of the economy and better weather have caused speculative traders to find other pursuits. None of the major social media plays have made big moves in over a month, which may have discouraged some that were looking for easy money.
It is particularly interesting that this decline in trading action has occurred as we head into what will be some of the most robust economic growth many people have ever experienced. To a large extent, the growth will just be a return to normal and some of it may already have been discounted, but many individual stocks are good values and will be putting up some good numbers.
The good news is that conditions are ripe for some "don't short a dull market" action. If the bears are unable to produce sustained downside traction, there are typically some folks who think, "If they can't take them down, then it is time to buy." We had a little of that into the close on Thursday, but the energy hasn't yet developed again here on Friday morning.
I'll be focused on finding pockets of trading action once we see how things open.