There was an interim trade deal with China on Friday. I am sure this is not the end of the soap opera but for now it is enough for the market to rally. Obviously, the candle on Friday is not particularly bullish if it is followed by more relentless selling on Monday but we are certainly seeing an improvement in price action and market breadth.
The large-cap market indexes are back above their 50-day moving averages. The 52-week high list is growing and it is not dominated by REITs and defensive stocks only. On the contrary, we are seeing various sectors represented – semiconductors, electronic equipment, biotech, software, service, retailers, restaurants.
The Fed is expanding its balance sheet again and companies are buying back their shares at near record levels. All those factors might be enough to improve market sentiment and lead to higher prices. And when it comes to price action, higher prices have the uncanny ability to attract sidelined cash.
Keep in mind that the next earnings season starts next week with a bunch of financials scheduled to report. As always, earnings season will create many new trends and will provide an additional clue about the current market sentiment – there’s no better measure of risk appetite than the market reaction to earnings.