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Ongoing Belief in Good Outcomes

Briefing.com

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Chief Market Analyst

We’re not sure the stock market needed another excuse to rally in this holiday-shortened week, but it has one and it is going to rally at the start of today’s trading.

Currently, the S&P 500 futures are up 28 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 50 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 310 points and are trading 1.1% above fair value.

The excuse is wrapped up in the news that the General Services Administration has announced that it will now release funds to help Joe Biden and his administration transition into office. The sweetener for the market is that President Trump condoned the action, albeit with a reminder that his legal challenge of the election process continues and his belief that he will prevail.

What’s prevailing in the stock market right now, though, is a belief that only good outcomes will prevail, whether we are talking about leadership transitions, the coronavirus, the economy, earnings, interest rates, inflation, and the performance of the stock market itself.

That’s why the Russell 2000 is up 18.2% this month and that’s why the S&P 500 energy sector is up 32.0% this month. That’s why most stocks are up (a lot) this month.

That’s why there is a fear of missing out on further gains, a performance chase, a short squeeze, and ample “funny money” action driving up low-priced stocks with low floats on many multiples of their average trading volume.

In some respects, it is typical behavior this time of year, particularly the “funny money” trade that latches onto a theme and drives parabolic moves in microcap stocks.

Undoubtedly, in the not-too-distant future, we will be talking about how many of those same stocks collapsed after the trading herd moved on to new pursuits. 

For now, there is a herd mentality that is favoring the reopening trade. There have been quite a few earnings reports out of the retail industry, too, that have kept the herd grazing in green pastures.

Granted not every retailer reporting results since yesterday’s close is trading higher, yet just about every retail since yesterday’s close reported earnings that were far ahead of consensus expectations. That includes Urban Outfitters (URBN)Best Buy (BBY)Dick’s Sporting Goods (DKS)Dollar Tree Stores (DLTR)Tiffany & Co. (TIF)Abercrombie & Fitch (ANF), and Burlington Stores (BURL).

Many of these stocks have already made big moves this month, leaving them ripe for some sell-the-news interest. Regardless, the timing of their better-than-expected reports has been good for general sentiment as they have arrived on the heels of yesterday’s upbeat holiday sales forecast from the National Retail Federation and just before Black Friday.

At the moment, it is green Tuesday for the stock market, which is slated to open higher on broad-based buying interest wrapped up in good thoughts and a momentum trade that hasn’t moved on just yet.

Originally Posted on November 24, 2020 – Ongoing Belief in Good Outcomes

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