The indices managed solid gains on Monday that pushed the Dow Jones Industrial Average (DJIA) and S&P 500 to new all-time closing highs, but what was most notable about the action was less rotation out of technology stocks and better speculative stock picking in small-caps.
Market players continued to rotate into reopening names such as Macy's (M) and United Airlines (UAL) , but the FATMAAN names and the Nasdaq 100 also found support and turned up. The sharp rotation that has marked recent market action cooled off.
This slowing in rotation helped to make individual stock pickers more confident as well. There was less focus on movement between various sectors and more emphasis on the merits of individual stocks. Also, there is anticipation that some of the stimulus checks that will be hitting this week will find their way into the stock market.
The short-term key to this market continues to be interest rates. The Federal Open Market Committee (FOMC) is starting its two-day policy meeting here on Tuesday and will announce its policy on Wednesday. The market seems to be anticipating that there will be an effort to reassure participants that inflation is under control and no immediate action is needed.
We need to watch carefully to see if bond market worries start to spill over again. If they do not, then that should provide a good environment for stock picking. Bitcoin has lost some of its recent momentum, but traders were aggressively trading gambling, cannabis and NFT (non-fungible token) names on Monday. There are some very good pockets of action, but it requires selective stock picking and careful trade management.
We have a good trading environment right now as the market seems to be optimistic that the Fed will help keep interest rate worries under control.