Editor’s note: These are unique times, yet almost as unique. This market has now been in the black for 20 straight trading days, and is off to its strongest start to a year in six years.
It could be that investors are simply sanguine, no longer pressing for certainty on the bearish side but instead wondering what will happen the next week? It could be that they’re still in a nice, calm period prior to this summer’s looming deadline on the U.S. debt ceiling. Or it could be that it’s the post-earnings season buyback mania that has propels the S&P 500 above 2,800.
It’s actually a little of all three.
In fact, today is one of the best days in the S&P 500’s history, the very day the feds announced at a 2:00 p.m. Eastern Conference call that they were ending the federal government shutdown. Just prior to that official declaration, the market closed a respectable 249 points higher.
Tech stocks were particularly strong in the final hour of the session, helped by a surprisingly strong earnings report from Microsoft. FANG stocks — Facebook, Amazon, Netflix and Google — also contributed to the late rally. (Amazon’s upward day also lifted its stock on a single day for the first time since 2015.)
Stocks were up even as crude oil continues to slide — and as the EU unveiled a plan to impose a 5.2 billion euro tax on Apple’s European profits.
Traders are still waiting for the big U.S. tax cut to kick in — and in the mean time, the greenback is up a whopping 9% against the euro this year. Oil is up almost 10% against the dollar in the first three months of 2019.
So as the Federal Reserve buys shares from everyday people and backs off rate hikes, the Dow is rallying. That rally keeps the S&P 500 and Nasdaq comfortably above their 20-day moving averages.
It has been awhile since we’ve seen such a substantial move, and it’s hard to overstate just how far the market has already come. But such momentum is almost always followed by a retreat — one that brings sellers back into the game.
It’s hard to draw conclusions without knowing which way that battle will unfold, but there are only a few ways to play it.
Trump has suggested that he might be willing to cut a deal to raise the debt ceiling to avoid default, which if he’s serious could lead to massive inflation.
At the same time, if he continues to raise the budget by $300 billion over the next three years to fund the relief package for the Puerto Rico Hurricane Recovery Plan, it would help put more inflationary pressure on the dollar, and thus weigh on the market.
Alternatively, he could do both, as long as markets stay strong. But while he thinks it makes no sense to negotiate over the debt ceiling, he thinks it makes sense to try to negotiate to fund hurricane relief — which might erode the value of the dollar, and weigh on the stock market.
The market rally might suggest some investors are thinking along the same lines — but as of now, they are hedging their bets, buying both, hoping for the best and being ready for the worst.