Last week was the S&P 500’s worst week since right before the election (-3.3%). This week was the index’s best week since the election (+4.7%). Funny how that works.
Every week has economic news, but last week nothing rose to the level of, “the worst economic developments in three months.” Just like nothing this week was, “the best economic news in three months.”
Instead, last week’s and this week’s volatility was driven by swings in investor sentiment, primarily affected by a spectacular bubble in a few fringe stocks.
Last week this out-of-control fire threatened to spread to the rest of the market. While investors were willing to accept stretched valuations in the best-of-the-best stocks, they were not willing to tolerate it in nearly bankrupt video game retailers and movie theater chains.
But over the weekend, those bubbles burst without taking anything else down with them and the indexes have been rallying in relief ever since, finishing this week with five consecutive gains.
What does next week hold? More of the same. While we won’t be able to match “the best week in three months”, the index will continue grinding away at record highs.
As much as the cynics love to hate this Teflon market, the one thing we know about fragile and vulnerable markets is they don’t keep making record highs. What is high tends to get even higher and that is definitely the case here.
Stick with what has been working and that is riding this relentless rally higher.
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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.