All the major indices have been in a strong uptrend since early October but this week they caught many market players by surprise as the pace of gains picked up. The S&P 500 hit new all-time highs every day this week and the buyers jammed things higher into the close Friday as option expiry occurred.
The week started with the skirmish with Iran still fresh in the minds of many, but it turned into a net positive despite political efforts to characterize it negatively.
The U.S. eliminated one of the world's top terrorists and experienced no major harm to lives or property. That helped to provide a foundation of positive sentiment. However, it was the signing of phase one of the China trade deal on Wednesday that really helped to gin up the positive momentum.
Some traders were looking for a "sell the news" reaction to the much-anticipated trade agreement and there were many critics that were quick to provide a negative spin but at the end of the day this was a good deal and the market celebrated the progress.
Into the signing, the indices were grossly extended, the deal was well-anticipated, and there were plenty of bears to tell us that it was a loser agreement. In other words, it was the perfect set-up for a "sell the news" situation. However, when that reaction did not materialize it produced a mad scramble to cover shorts and to try to find even more long inventory.
For the rest of the week, traders made lame jokes about the unrelenting strength. There is almost no one who believes it can be sustained but trying to fight it has been a disaster for the skeptics.
One thing that is very odd about the action is that almost everyone attributes it to nearly $500 billion in additional liquidity created by the Fed to deal with Repos. Typically, when the catalyst is so well known and embraced it stops working but in this case there is a different dynamic at work and the good news is never fully discounted.
Earnings season picks up next week and there is the economic conference in Davos to provide some "woke" economic headlines.
Don't forget the market is closed on Monday for the Martin Luther King, Jr. holiday. I will see you on Tuesday.