The indices are looking at a slightly soft open this morning but it would be a mistake to read too much into the action. Many stocks are in need of a rest but the bears are so frustrated by the steady market strength that they are inclined to overreact to weakness. Rather than appreciate some read on the screens as just healthy consolidation there is an inclination among many skeptics to view it as the start of a topping process.
There are strategists at J.P. Morgan (JPM) and Goldman Sachs (GS) that believe that the impact of the coronavirus is going to eventually be an issue that the market embraces. Marko Kolanovic at J.P. Morgan even warned that 'this bubble will likely collapse...with valuations reverting closer to 2010-2020 average.'
However, the issue for this market hasn't been the bearish arguments. The issue is when they would matter. Everyone active in this market is very aware of how the economic impact of the coronavirus is being ignored. It is being chalked up to a flood of central banker liquidity and has caused fundamentals and technical considerations to be deemed meaningless.
Many market players are making the mistake of trying to anticipate when the character of the market action might shift rather than waiting for some signs that the obvious worries finally do matter. The price action is going to tell us very clearly when the mood of the market has shifted. There still are no signs of it.
Not only are there no signs that the market is about to reverse but the pockets of strong trading action in individual stocks illustrates an appetite for speculative action. It is a narrow market with only about 58% of stocks over their 200-day simple moving average but there is no disputing how there is a large amount of idle cash looking for a place to go.
There is quite a bit of talk this morning about the Democratic debate with Bernie Sanders viewed as the most likely winner. Mike Bloomberg was hit hard and looked unprepared for the attacks but his marketing machine is still a formidable power.
Some market players are concerned about the rise of Sanders eventually hurting the market. So far the market is unconcerned about him as the view is that the electoral path for Trump is easier against Sanders than nearly everyone else. The polls show that Sanders does well with the popular vote but in must-win states like Pennsylvania and Florida, Sanders has difficulty against Trump.
Another reason the market isn't too concerned about Sanders is that even if he does prevail there is very likely to be massive gridlock in Congress when it comes to implementing his policies. Nonetheless, there is little question that his agenda would have a profound negative impact on pharmaceuticals and the medical industry, and there could be a significant reaction in various market sectors if the reality of a socialistic agenda takes hold.