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There was a good billing to begin the month of December. The Nasdaq Composite and S&P 500 both set closing record highs. They did so largely on the back of the mega-cap stocks and semiconductor stocks, which outperformed in Monday's session, whereas the broader market went along but didn't necessarily play along with much gusto.
The gusto is lacking again this morning. Currently, the S&P 500 futures are up five points and are trading 0.1% above fair value, the Nasdaq 100 futures are up five points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are up three points and are trading fractionally above fair value.
There is a lack of conviction on the buy side and the sell side. Valuation concerns are likely influencing the former while the market's seemingly indefatigable climb to record highs is likely influencing the latter.
By and large, there is an allowance to think the market can continue to move higher with momentum, a seasonal bias, and a fear of missing out on further gains playing into that thinking, but participants are going to wait on the price action to be the determinant, mindful that the big rally since the election presents a valid reason to think there could be -- or should be -- a consolidation period.
This isn't new thinking. The S&P 500 has closed higher in nine of the last 10 sessions, and we would argue that the belief the market is due for a consolidation period was present at the start of each of those sessions. That expectation, ironically, has served as a catalyst for the ongoing gains.
To wit: when there is a growing sense that the market should pull back, but doesn't, the people who missed the move oftentimes lose their nerve and get "squeezed" back into the market, unable to tolerate the prospect of missing out on further gains.
The frustrating element for market watchers, as opposed to market participants, is that there hasn't been a broad-based failure of leadership in the post-election move and, more recently, market rates have been dropping in short-covering action. If mega-cap stocks lag one day, the rest of the market seems to benefit at their expense. If the broader market lags one day, the mega-cap stocks flex their muscle and keep things going.
It is the great churn with capital rotating between sectors and factors (e.g., value over growth or growth over value) as opposed to leaving the stock market altogether.
The equity futures market this morning embodies the churning action with participants simply waiting to see where the tape will lead them as they ingest reports of encouraging guidance out of AT&T (T), strong Cyber Monday sales, OPEC+ likely extending its production cuts through the end of the first quarter, BlackRock (BLK) buying HPS Investment Partners for approximately $12 billion in equity, a Delaware judge again rejecting Elon Musk's $56 billion pay package, and President-elect Trump declaring he will block Nippon Steel's acquisition of U.S. Steel (X).
There are other news items, but the stock market's behavior is the news, and it has been mostly good news all year -- and certainly since the election.
