Friday's Market Minute: Stimulus Confusion

U.S. stock futures rose early Friday as Wall Street continued to search for clarity surrounding a new potential stimulus bill. The S&P 500 is on track for gains of 3% this week, but the optimism on whether a stimulus bill gets passed has traders still concerned. Optimism for stimulus, whether it's pre-election, post-election, a comprehensive package, a stand-alone deal, whatever and whenever, is supporting breakouts in cyclicals like industrials, materials, consumer discretionary, and banks.

The price action since the end of September is baking in a lot of positive news into the stocks. One glaring concern is that the volume on up days has been notably light and the volume on down days has been heavier. This may signal weaker bullish conviction, but that may not put an end to the October rally.

Asset rotation is taking place as strength in the small-caps is signaling that investors are not getting out of the market and are just looking for other opportunities. The small-cap Russell 2000 is up nearly 6% this week and is now only down 2% on the year. The market may be under-allocated, and that’s why the markets go up on light volume days. The pain trade is still higher because many people are underweight the market with assets building up on the sidelines. Absent of any downbeat news on the virus, stimulus is coming, but the timeline is still confusing investors. Maybe earnings next week will turn the attention of investors, but the market will continue to trade on headline stimulus news in the near-term.

Photo by René DeAnda on Unsplash