Mike Santoli's market notes: Risk-taking back now that election is over, infrastructure stocks jump

Published Wed, Jan 6 20211:26 PM EST

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Georgia Senate results add some torque to the rotational shift that's been underway for months in the market. The full "reflation, stimulus, higher nominal growth" script has been written for a while, and someone this morning called, "Action." That — combined with the fact that what markets tend to want most from elections is for them to be over — has restored a risk-seeking energy to the tape. The S & P 500 tags a marginal new high, restrained by heaviness in big growth stocks, REITs and software. Small-caps, banks, infrastructure-related names are where the fun is at. Adding aggressively to good runs already had since September. Not a new theme – important to recognize this shift has been in train for months. Since Labor Day, small-caps, banks, oil-services +35-40%, Nasdaq 100 and S & P tech sector flat. And it's worth recalling that this is a note-perfect replay of the tune the market played after the 2016 Republican sweep. It lasted for a bit before market leadership reverted toward growth and eventually bond yields and the Fed pushed back a bit. Here's the iShares Infrastructure ETF – already trending higher and now gone vertical for a day at least. Does this look like a sweet entry point? This all makes sense in a linear way. A Dem Congress will prioritize palatable consumer/business fiscal stimulus over other priorities such as corporate tax hikes or aggressive anti-business regulation. The market is correct in detecting the chances for things to start running pretty hot in coming quarters: $1 trillion in consumer-savings buildup, likely more stimulus checks, corporates sitting on $2 trillion in cash, SPACs pushing toward $100 billion of dry powder, commodities running higher on global demand-recovery and weak-dollar fuel, debt plentiful and cheap. The Fed has tried to be clear as possible that it will not respond to all of this with any tightening moves unless/until its long-term targets for employment/inflation are reached. A test coming, or permission to party? Overall market is a choppy mix of rich valuations and generally confident sentiment against early-cycle rebound/fiscal hopes and a Fed that will err on the side of easier for longer. Odd hybrid of 2010 and 1999. Some speculative froth got skimmed away in recent weeks, allowing the market to have a stealth pullback while the indexes flattened out. But the adrenaline traders aren't going away. SPAK ETF up 3%, Solar ETF up 10% and +270% the past year. Can still see the makings for an "enough for now" moment not too far ahead. Probably will require sentiment to get even a bit more lathered up if the popular trades seem easy for a bit longer. A mess of new IPOs and expiring lockups from recent IPOs are on the come. Q4 earnings season a pretty intuitive time for a pause/reset. Bonds heavily for sale, 10-year Treasury at 1.04% - still in a kind of sweet spot where steeper curve is good and not pinching debt costs much. Investment-grade corporate bonds getting hit. Though junk debt trades solid, a closer cousin to equities than to Treasuries in a risk-embracing tape. Market breadth quite solid, 70-80% upside volume. VIX crushed, predictably, on passage of the known election catalyst, still above true "calm, normal" levels but a +1.5% day on the Dow is not necessarily when option prices are going to go to sleep.

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This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.