Stocks Only Care About One Thing Right Now
The market continues to climb a wall of worry.
Stocks rose again yesterday despite widespread riots and violence in the US. I think this is ridiculous, but as I keep telling my clients, “It’s not what we think, but what the market thinks that matters.”
And the markets think stocks are going HIGHER. Indeed, the internals are VERY strong despite all of the negative headlines.
Breadth typically leads stocks. And right now, it’s leading them higher.
The chart below proves this. Breadth (dark blue line) suggests the next leg up is here now. By the look of things, stocks could hit 3,100 on the S&P 500 this week.
The same is true for high yield credit. Here again, we see a market leader telling us that stocks should move higher shortly.
In simple terms, the market is telling us that it doesn’t care about riots, unemployment, or any of the other horrific headlines today.
So what does it care about?
Stocks are Rising on Major Money Printing
With that in mind, the Fed balance sheet has broken above $7 trillion.
It was at $4.1 trillion in late February 2020. So we are talking about roughly $1 trillion in liquidity hitting the financial system every single month.
If I’ve learned anything from the markets over the last 12 years, it’s that stocks LOVE Fed money printing. Small wonder then that stocks are overcoming an economic depression, political turmoil, and more.
Put simply, there is no reason to overthink this. The trend remains up for now.
The key is to keep one eye on the exits for when stocks begin to care about something other than Fed liquidity.
Editor, Money & Crisis