Market players look rested and ready to run after the three-day weekend. Incoming Treasury Secretary Janet Yellen is scheduled to testify before the Senate Finance Committee at 10 a.m. ET here on Tuesday. According to her prepared remarks, Yellen is actually stating that it is time to "act big." When it comes to fiscal and monetary policy, there is nothing the market likes better.
There will be plenty of news flow this weekend as Joe Biden is sworn into office on Wednesday and talk about civil strife will dominate news coverage. There is also continued growth in Covid-19 cases and plenty of political news, such as the second impeachment of Donald Trump even though he no longer will be in office as of Wednesday.
The market has been shrugging off almost all news flow lately, but there should be a little additional movement to some of the headlines that hit about fourth-quarter earnings. This week is mostly banks and financials, but Intel (INTC) and IBM (IBM) report on Thursday afternoon. Next week we will see a variety of bigger-cap stocks release their numbers.
It should be quite clear that what is moving this market isn't political, economic, or Covid news. The big driver right now is pure supply and demand. Smaller individual traders and the aggressive pros who follow them are focused on stock picking, and they favor the small-caps and low-priced names. The special purpose acquisition companies (SPACs) remain red hot even as new filings continue to hit. This is a market that favors themes, stories and price action.
Many of the old-time Wall Street pros are cringing as they watch this action. A good example is found in an article in The Wall Street Journal here on Tuesday morning headlined, "When Investors Forget Fundamentals, the Market Is Broken." The author notes that lower-priced stocks have done much better than higher-priced stocks and comments, "The fact that the stock price at the start of the year is a near-perfect determinant of how a stock has performed is depressing."
That might be depressing if you don't trade them, but for many small investors this focus on lower-priced stocks has produced some of the best trading they have ever seen. They are told that it is sure to end badly, but small traders are opportunists more than anything else and they are going to keep playing this game of trading low-priced stocks until it stops working.
My view of this market is to keep doing what has been working but to stay vigilant and be ready to shift once there is a change in market character. So far, there is nothing in the price action to suggest a sudden collapse is about to occur. Many Wall Street pros tell us how outrageous this market action is, but they have been punished if they try to time a top.
We have a strong open and a potentially uber-dovish Janet Yellen to keep things running. I'm sticking with stock picking.