It was a solid week for the market as a soft consumer price index report helped sentiment, and the "January Effect" helped small-caps drive the indexes.
When small caps are performing well, it typically leads to strong breadth, because there are so many smaller stocks. Breadth on Friday was strong again, with around 5,100 gainers to 3,000 decliners. We still don't have many new 12-month highs, but it is increasing with around 180 names.
The Russell 2000 had its best performance since last October. This was largely due to bounces in many badly beat-up stocks that were dumped in late December for tax reasons and repositioning. Many of these names remain fundamentally intact, and market players focus more on picking the best ones.
Banks kicked off earnings season with some mediocre reports, but the buyers stepped up, and the entire sector was up nicely by the end of the day. We have more earnings next week, including Netflix (NFLX) , but the real meat of earnings doesn't start until the week after.
What was most notable and bullish this week was that there was not a major "sell the news" reaction to the CPI, even though there was a strong run up into the news. The Fed is unwilling to sound too optimistic and will continue to warn us that the battle against inflation is not over, but market players are convinced that the Fed will pivot to a more dovish stance at some point this year.
The other big positive this week was that we focused much more on stock picking. Biotechnology was particularly strong. This sector led the market down when the bear market started, and it is nice to see that it is now exhibiting relative strength.
Don't forget that the market is closed on Monday. Have a great weekend, and I will see you on Tuesday.