The S&P 500 rose 2.29% last week. There was a surge from Tuesday through Thursday. It made another all time high.
The momentum resumed after a one day sell off on the previous Friday, an options expiration day with double normal volume. The Tuesday surge to an all time was followed by another surge higher on Wednesday. Notice the unusual decline in large block buying, green, with a sharp market rally.
The initial surge was caused by a presentation by NVDA late Monday. The second was generated by the Fed and Chairman Powell on Thursday afternoon.
NVDA had high expectations. The presentation was powerful. NVDA went up, but not an explosion.A lot was expected. However there was a side effect from a series of mentions of partners of NVDA. A series of stocks jumped as they were mentioned as partners of NVDA. The whole event had a lasting impact since there was a steady flow of interviews on financial networks broadening the public exposure to the potential of AI.
The Powell Q&A on Thursday was a surprise.. The Fed raised its GDP growth to 2.1% a from 1.4% and raised its inflation forecast at year end to 2.6% from 2.4%. There was worry about Fed policy. During Q&A Powell answered worries in a very dovish way at every turn The market took it as a reinforcement of a dovish Powell.
A report came out this week that was sort of startling. The speculative positions in NASDAQ futures had an extreme drop from the previous week. It was likely related to the extraordinary volume increase on the decline on options expiration day. See below. It is very unusual to have the market rise in the face of this type of selling. Importantly, it provided sidelined cash for aggressive investors to buy back into the market.
This money likely started rolling back in mid last week. Meanwhile, the overall bullishness is bringing in the public like the levels seen in 2021 after the Fed stimulus, huge Fiscal deficits and a vaccine for the Virus.See below.
I have been pointing out that AI was my best gain possibility for the stock market in my "thoughts on 2024 outlook" report. Goldman has a report showing the performance AI related stocks versus non related AI related over 12 months as of the previous Friday. See below.
Last week, for the first time this year, I described the factors that could cause a short term pullback, including the blackout period for stock buy backs, quarter end pension selling for rebalancing and an unusually high level of tax payments due this year.
There was a risk of disappointment in the NVDA presentation because the expectations were building for weeks ahead of the NVDA outlook presentation. Also, there were worries that the Fed would get more hawkish in the face of a stronger economic outlook and inflation rising in recent months. Both of these events turned out to be bullish.
We are back with a momentum market. The excess is building with stretched rallies by many historic standards. The factors on supply demand factors above are starting to unfold this week. We will see if these short term forces can blunt the extraordinary momentum.
Tech has already become more prominent that in the internet bubble. This is Tech as a percentage of the S&P. It is definitely not a short term trading factor. This can go higher.
The key economic report of the week is the PCE inflation on Friday morning, the last trading dai of the month.
Blub
Jerry
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