The indexes jumped higher Monday with the S&P 500 and Dow Jones hitting their highest levels since March 6. What was most notable about the action -- other than the huge gains -- was the steadiness of the advance. There was hardly a down tick all day and the indexes finished with just a little minor selling into the close.
Breadth was extremely lopsided at around six gainers for every decliner and the number of new 12-month highs rose to nearly 200. There was some rotational action under the surface as the "stay at home" plays stumbled while money chased some of the value plays that have been laggards lately.
There were three main reasons for the strength today. First were comments by Fed Chair Jerome Powell, that the Fed had as much ammunition as needed, second was growing optimism about the reopening of the economy, and third was news of some promising Covid-19 treatments.
Those three facts, combined with skeptical market participants with too much idle cash created a rush to add long exposure. The fear of missing out was palpable, as so many folks have remained cautious due to fears that the market has not fully discounted the economic problems that lie ahead.
There is still some technical overhead on the charts at the 200-day simple moving average of the S&P 500 and stocks are extended after the big bounce, but this sort of action creates underlying support. Those who missed out are more inclined to buy weakness the next time they have a chance. While it is hard to chase stocks at this point, there are more potential buyers at lower prices now.
The strength of the indexes covers up how extremely difficult it has been to navigate this action. Caution has been punished and any skeptical view of the economy has been treated as idiotic. The price action is as disconnected from the news flow as I've ever seen it.
If the past is any indication what the future holds, then we should expect the unexpected.
Have a good evening. I'll see you tomorrow.