So far in this young year, we have seen a new variant of highly contagious COVID, a blue sweep in Georgia resulting in unified government in DC and a massive protest gone awry with the United States’ Capitol being stormed by lunatics and destructive people. If I read you those headlines from Japan, Germany or Brazil and asked you to guess how their stock markets were performing, I think it is safe to say those most would estimate at least 10-20% declines.
But not here. Not in the U.S.
Through last night’s close, the S&P 500 is up 1.27% in 2021. If there ever was a classic case of my favorite expression, this is it! It’s not what the news is, but how stocks react. COVID getting worse, stocks rally. Democrats takeover government, stocks rally. Crazy people storm the Capitol, stocks rally. See the trend? Stocks rally. And this is on the back of epic greed and euphoria. Simply put, it tells me that stocks are not ready to go down, even with all the excuses.
After five closes above my longstanding 30,000 target, 33,000 is up next. I really didn’t think I would even be considering it in the short-term and I am not sure I am now. However, I also won’t be arrogant enough or dumb enough to believe it can’t happen. The real fireworks have been in the S&P 400 and Russell 2000 which are mid and small cap indices. They are up 4.96% and 6.18% respectively in 2021 in only four days.
Not a single reader of mine should be surprised. I was crystal clear that small and mid caps should lead the first five days of 2021.
Given how small caps and technology closed the year, the Russell 2000 and S&P 400 are supposed to outperform the first week of 2021. Likewise, the NASDAQ 100 is supposed to underperform which will be one of my themes for 2021.
There it is for you in plain English. It could not have been any easier. 5% and 6% are sometimes good returns for an entire year. They sure are for any single quarter or month. But this trend gave it to us in just four days.
At some point, stocks are going to pull back because they always do. That’s a fact. And while it certainly seems like it’s sooner than later, I do not have high conviction right this second, but that will change soon. My biggest issue is that I love to sell into vertical moves in any asset class, but I am having a hard time finding new things to buy that fit my risk/reward parameters. That says something about the market.
