The S&P 500 gained about 1.6% on strong breadth, which is the biggest move for that index since Aug. 8, 2019, when it gained nearly 2%.
The strength was a product of a number of different things and confused many market players that were looking for coronavirus fears to keep the pressure on both U.S. and foreign markets.
The Fed continued its repurchase agreement -- repo -- action and the People's Bank of China flooded markets with liquidity to battle worries about the economic impact of the coronavirus. This has been a liquidity-driven market for a long time and when those injections are made, it helps to produce immediate momentum.
In addition, some of the fears about the coronavirus appear to have subsided as the numbers indicate that the spread of the illness -- especially outside China -- is well contained. One question for market participants to ponder is whether the strong price action is causing the impression that the coronavirus' impact on the economy may not be so bad or is there legitimate news that is causing the positive action. It is a chicken-and-egg type thing, and it is not clear whether the price action is changing the view of the economic fallout or vice-versa.
In addition to the central bank-created equity and the perception caused by the positive price action, a further factor driving the action is poor positioning. Many market players have been anticipating further market softness as worries about the economic impact of the virus take place. They were caught by surprise when stocks traded straight up all day and then held onto most of the gains into the close. Trying to reposition helps to keep the strength going forward.
There are some pundits that attribute the strength Tuesday due to the chaos in the Iowa caucus that seems to have benefited President Donald Trump. The general perception is that Trump is market-friendly and that the market favors his re-election over, say, U.S. Sen. Bernie Sanders.
The president will give his State of the Union address Tuesday night and that will likely contain some comments about the exceptional market performance during his presidency.
With the coronavirus worries shunted suddenly, and maybe even unjustifiably, there was no place for stocks to go but up. Whether it lasts, we will have to wait and see, but the bears are in a poor position to fight this action. We had similar action last week, and that led to a sudden downturn on Friday. But conditions are not the same and fear of missing out is overwhelming any fear of economic fallout from the coronavirus.
Have a good evening. I'll see you tomorrow.