Despite a negative reaction to Amazon's (AMZN) earnings and weak PMI data in China, the indices are maintaining a positive tone. Optimism about the ongoing trade negotiations between China and the U.S. is receiving the credit for attracting buyers, but the positive momentum generated by the dovish Fed is also contributing to the upbeat sentiment.
Every earnings season has a theme -- and the theme for the current one is "Better than Feared." There are a few exceptions, but overall the reports have not been that great. However, expectations have been low and market players are relieved that things aren't nearly as bad as they looked in December.
The dovish Fed and optimism about a China trade deal have helped to provide a tailwind, as well. It also didn't hurt that the long government shut-down came to an end -- although the border issue remains extremely contentious.
Market players want to forget the misery of the fourth quarter -- and there has been plenty of news flow that has allowed them to feel better. The action in Apple (AAPL) , following a mediocre earnings report, is a good example of the mood. In a market that was chugging along on strong momentum, the report from Apple would have likely generated a much different response, but right now market players are simply happy that things are not falling apart.
If Amazon (AMZN) had reported a few days ago, it would have probably received a positive response to its report, but the big move on Apple, Facebook (FB) and a few others caused expectations for Amazon to rise and that set the stage for disappointment. Amazon has a history of coming back from early selling pressure like this so I wouldn't be too quick to count it out.
The big issue now is how much further this positive momentum can carry the market. Low expectations are good for a bounce, but they don't typically make for a lasting uptrend. On the other hand, we have the 'don't fight the Fed' dynamic at work and there is the potential at any time for positive news on China trade.
It is increasingly clear that both China and the U.S. want a deal. The Chinese economy continues to sputter and in the U.S., Trump is keenly aware of the political boost that a deal would give him.
After the sort of move that we've had, it is unlikely that the indices are going to suddenly fall apart unless there is some major negative news, but many stocks are technically extended and the news flow isn't all that positive. It is a good time to make sure you are protecting profits and are not stuck in a 'fear of missing out' mindset.