The market’s climbing again this morning as tech leads the way. The Dow and S&P are up a meager 0.07% and 0.15%, respectively. Meanwhile, the Nasdaq Composite is booming.
The tech-heavy index has already risen 1% on the day, overshadowing worse-than-expected weekly jobless claims.
First-time unemployment filings came in at 793,000 for the week ending February 5th, surpassing the Dow Jones estimate of 760,000.
But tech investors didn’t seem to care.
“We pulled a lot of optimism forward, and the market is trying to figure out where we go from here,” explained Gregory Faranello, head of U.S. rates trading at AmeriVet Securities.
“The fiscal and monetary side of the equation seems priced into the market. Going forward, we need to see a broader economic recovery, a broader reopening and a broader dissemination of the vaccine.”
The market’s bullish exuberance is basically a runaway train at this point. Bad economic data means the Fed will maintain its dovish stance. So long as the liquidity continues to flow and aggressive fiscal policy remains on the table, buyers will keep equities in the green.
And if it looks like the U.S. economy is starting to recover at a faster pace? Well, it might not matter. Treasury Secretary Janet Yellen plans on cranking the stimulus lever until the U.S. reaches “full employment” – something she said could actually happen as early as next year if the Biden administration pushes through its $1.9 trillion relief package.
That has analysts worried about significant investor herding moving forward.
“We are in this melt-up environment where if there’s not a big negative headline, it seems every day the market just grinds a little bit higher,” said Baird strategist Ross Mayfield.
Skeptics have been warning of a melt-up for months, now. And there’s been plenty of debate as to whether the market’s already experienced one or not.
According to Bank of America, the conditions for a melt-up have arguably never been better.
“Record low yields in fixed income, low expected returns in large-cap equities, and $23 trillion in policy stimulus (with more on the way) leave investors with no good reasons to be bearish but few inexpensive ways to be bullish,” bank strategists said in a morning note to clients.
“Some are turning to alternatives. Crowd-sourced trading, the rise of cryptocurrencies and Special Purpose Acquisition Companies (SPACs), the lack of guidance in both foreign and domestic markets, and record savings gluts are all evidence of low investor trust in conventional methods and desperation for returns in a stagnant world.”
The mania has to end at some point. But it might not happen without an unprecedented run-up prior to the market’s true peak.
As has been the case for over a year, investors don’t want to go “full-bear” just yet. They do, however, have every reason to be fearful of a rapid equity crunch.
But the market’s speculative thirst for higher and higher returns has yet to be slaked. Pending another wave of dizzying, windfall gains, the slow grind higher should continue.
Until, of course, it all comes tumbling down in spectacular fashion.
Likely sparked by a string of truly market-breaking headlines, whenever they arrive.
