As the market heads into earnings season, it is feeling quite content about a supportive Fed and is unconcerned about the lack of recent progress on China trade. The indices are in good shape technically, although there was choppy and inconsistent action under the surface Thursday.
Contrarian bears will claim that market players are too complacent and should be far more worried about the potential for a slowing economy. They are hoping that a weak earnings season is going to bring home the realization that trade wars and other issues are putting pressure on economic growth. At this point, the bulls shrug and take comfort in the obvious dovish bias of Jerome Powell.
If you are looking for negative, the underperformance of small-caps is a bit of a concern. This market has been driven more by a rush to put capital to work through index vehicles rather than individual stock picking. A smaller group of big-caps have been the primary driver, while quite a few individual stocks are lackluster.
On Thursday, the upside in the market was mainly the Dow Jones Industrials and the move in the Dow was primarily driven by two stocks -- Goldman Sacks (GS) and UnitedHealth Group (UNH) . Other names are holding up well such as Microsoft (MSFT) and Walmart (WMT) , but the gains are driven by a very narrow group.
Financials (as measured by the Financial Select Sector SPDR Fund (XLF) ) were particularly strong Thursday, as the yield curve is shifting and becoming more banker friendly. Banks make money when long-term rates are higher than shorter-term rates -- and there has been some movement in that direction lately as bonds take a rest.
We are at a juncture right now where the anticipatory bears are looking for earnings season to be a negative catalyst for stocks. There isn't any obvious reason that should be the case, but if you are trying to predict a market top, it is the obvious reason. We'll see how the market reacts to earnings as they start next week, but there is not a strong technical reason to believe that a top is about to form.
My game plan is to stay focused on my individual position and to keep my accounts as close to highs as possible. Watch for my weekend column, which discusses market timing by virtue of position management.
We have a solid start to the day and not much news flow on a summer Friday.
