The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
It’s the mood
Chalk up another day where the news headlines were unremarkable and the markets were quiet and the stock market rallied. Meta and Nvidia had a lot to do with the rally today so megacap tech was a driver of action. Investors rediscovered enthusiasm for those names, perhaps because of the renewed excitement for chips and the AI story, perhaps just to get in well ahead of earnings season. Even though those two stocks did the heavy lifting for the S&P 500 today, the breadth was still good for the bulls. Gainers outnumbered losers by more than 2:1. Despite the favorable market internals for the longs, capital flow was very light at 77%. It was a quintessential lazy summer Friday.
On a lazy summer trading session, when news is lite, it’s challenging to explain what is going on in capital markets. Today’s bullish outcome is probably best described as randomness. I think there is also a bit of a bullish tide at work as well however.
The perception of the stock market as a perpetual engine of upside remains unchallenged. The attitude is that the pace of the upside must slow because the gains of April and May were unsustainable. After a pause of about a month, the vibe is that equities should be ready to reward the longs again. We’re apparently done wringing our hands over Iran and the crude market appears to have figured out how to continue to operate despite the problems in the Strait of Hormuz. We are also coming up on earnings season and all analyst expectations are for great growth and upside guidance.
Rolling all this together creates quite a fertile environment for the longs. We don’t have a mania of greed, which is good. We just have a calm collective assurance that upside is on its way. And as we wait, it sure seems like incremental capital positions itself for the payoff.
I don’t think feverish upside is around the corner, even if we get great earnings results. I do think the steady two-steps-forward-one-step-back behavior is the nearly unanimous perception of market participants, up and down the spectrum. And perception is reality in markets.
See you Monday, have a great weekend.
-Mike
Visdom Market Commentary
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