Stocks are set to open higher to start the week despite continued uncertainty about the potential for a fiscal stimulus bill. Both House Speaker Nancy Pelosi and Senate Republicans have indicated there are substantial obstacles to a deal, but President Trump's willingness to do an even bigger deal is keeping the market optimistic.
What is clear is that there is more to this market than just a potential stimulus bill. The technical action is quite strong, sentiment is positive, there is strong underlying support, and optimism about the coming earnings season is high. When the market has had a setback due to political concerns there are buyers ready to step up and do some immediate dip-buying.
Several narratives are circulating on why the market is holding up well. Some of them have to do with the outcome of the presidential election. The market's biggest concern is that it won't be clear who the winner is, but that issue seems to be on the back burner at the moment. If the race tightens and comes down a couple of key battleground states then this is going to be an issue.
Another issue the market is ignoring is the growth in Covid-19 cases. Even though the number of cases continues to ramp up in most U.S. states and throughout Europe it is not causing any strong market reaction. That's because the mortality rate has been trending down. Treatment options are much better, as demonstrated by President Trump, and the hopes of an effective vaccine are growing.
The World Health Organization indicated on Friday that economic shutdowns are not the preferred way to deal with the virus. Economies are continuing to reopen despite the growth in cases and that is one of the main reasons the market is staying strong.
The indices and many stocks have had a strong run and it would be healthy if there was some consolidation, but as is often the case strong momentum is preventing any sharp decline.
I've been yammering for months now about the superior stock-picking that we have seen and that continues to be the case. The thing that is working best in this market is focusing on individual stocks with good stories, good charts, good numbers and strong price action. I'm going to stay focused on that until I see a correlated selloff of some magnitude. I am taking some partial profits along the way and staying vigilant, but the biggest mistake you can make recently is trying to anticipate a market top.
We have a mildly positive start on the way and there will be plenty of political news for the pundits to discuss and for the market to ignore.