There is passive investing and there is active investing. Right now, we'd say that investors are generally impassive.
The lack of conviction can be attributed in part to all of the conviction that has been shown since October. There was selling conviction that took the S&P 500 down 20% and then there was buying conviction that subsequently took it back up 20%.
In a manner of speaking, then, the market has 20-20 vision right now that is blurring its outlook. Will the next leg be higher or lower?
Maybe it will be neither. Maybe it will just be sideways as the market takes some time to digest a V-shaped recovery that has unfolded at the same time first quarter and calendar 2019 earnings estimates have been coming down.
Estimate trends haven't been the focus, however. U.S.-China trade negotiations and the Fed's pivot to a dovish mindset have been the focus. They have helped the market see the light in the sense that they have helped temper recession concerns.
Having done so, they have resurrected a stock market that was left for dead in the fourth quarter. Regular readers will know that we have pinned the rebound effort largely on the Fed's own born-again moment regarding its approach to monetary policy.
The willingness to be patient, and the acknowledgment that the Fed is likely to end its balance sheet normalization effort soon, have been soothing admissions for the stock market, which effectively viewed them as the restoration of the Fed put.
Both positions were reiterated by Fed Chair Powell in his semi-annual monetary policy testimony to the Senate Banking Committee on Tuesday, and they will likely be repeated today in front of the House Financial Services Committee.
The market's response to Mr. Powell's testimony on Tuesday was a muted one, because there was nothing "new" in his views, which had already helped launch a 20% rally in the S&P 500.
Similarly, there hasn't been much reaction to President Trump's meeting in Vietnam with North Korean leader Kim Jong Un. The nicety of that meeting had been telegraphed; moreover, the market wasn't expecting any major market-moving news out of the meeting, which has good geopolitical intentions.
There are some questions today in terms of what geopolitical intentions India and Pakistan have toward one another as the two countries have engaged in the semblance of tit-for-tat military skirmishes in Kashmir. Efforts to get the two sides talking are reportedly under way.
The reported hostilities are not a major factor at this point, yet with both countries having nuclear weapons, the altercation understandably is on the market's radar screen.
Other developments hitting its radar this morning include better than expected earnings reports from Lowe's (LOW) and Best Buy (BBY), some ugly FY19 earnings guidance from Weight Watchers (WTW) that has its stock down 36%, and the impending testimony of President Trump's former personal lawyer, Michael Cohen, to the House Committee on Oversight and Reform.
None of that, however, has caused any real stir for the broader market. The S&P futures are down six points, which leaves them 0.3% below fair value, and somewhat adrift after a 20% rally that has run into some resistance at the 2800 level.