Mike Santoli's market notes: Bull market maxims, record economic surprises, a broad rally

Published Tue, Jun 16 20202:12 PM EDT

Not to make too much of the past 27 hours of market action, but several maxims about bull markets come to mind: They don't let you in comfortably, dips are brief and shallow, modest good news is celebrated and the threshold for bad news to sting is high. Dial back and see a sharp 8% pullback over four trading days into Monday morning, and have quickly recouped more than half the loss. Looks in retrospect like a classic shakeout after an overheated run, enough to give pause to the speculative rally chasers in the options market but seen by lightly positioned investors as a chance to grab more exposure. The tenor of economic data could scarcely be better relative to forecasts. The Citi US Economic Surprise Index at a record. Now, forecasts will catch up, and other times a peak-y CESI reading wasn't the best entry for stocks (early 2018, for instance). Retail sales blowout today isn't even in here: Source: FactSet But combined with very loose financial conditions and an open-ended commitment from the Fed to stay easy until it closes the vast distance to its employment target, it creates decent support for stocks. Source: Goldman Sachs The market for weeks now has been able to shrug off rising Covid case rates in hot-weather states in part because they don't seem to threaten the move toward people doing more in public. In other words, Americans now seem willing to deal with the risks for a time. The Beijing/Florida virus headlines mid-morning caused a quick mechanical air pocket in stocks, but it was instantly bought by other machines which have no doubt learned that such news has not lately brought sustained selling pressure. The bond market has been coaxed toward the equity market's take on the current economic path, Treasury yields bumping higher and credit spreads again compressing in a risk-seeking move following the pro forma but not unwelcome details of its corporate-debt-buying plan. Huge question remains: What's likely to be the new equilibrium level of consumer/corporate spending once the rapid snapback forms the crook at the base of a "V?" As constructive as this market action is, the bulls still looking up at last week's highs, which could quite easily form the upper end of a range. BofA fund manager survey (which closed six days ago) definitely showed pros had finally been forced to chase the market higher, cash levels plunging and hedge-fund equity positioning much higher. Not yet to dangerously bullish extremes at all, but investor caution is somewhat less a tailwind for stocks than it's been during this whole run. Rally today is broad, with a tilt toward value/cyclicals but not one of those pronounced rotation days. Both software and transports up 2%. Some 80% of NYSE volume in advancing stocks, sturdy. VIX is bleeding lower, in the low-30s, though still well above where it stood before Thursday's dump. Day-to-day jumpiness still keeping it a bit elevated. VIX futures curve still hasn't fully settled down, a slight complication for the bullish case but not an outright barrier.

Not to make too much of the past 27 hours of market action, but several maxims about bull markets come to mind: They don't let you in comfortably, dips are brief and shallow, modest good news is celebrated and the threshold for bad news to sting is high.
Dial back and see a sharp 8% pullback over four trading days into Monday morning, and have quickly recouped more than half the loss. Looks in retrospect like a classic shakeout after an overheated run, enough to give pause to the speculative rally chasers in the options market but seen by lightly positioned investors as a chance to grab more exposure.