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There are four trading themes that are currently shaping out the price action in the U.S. stock market:
- The discounting of a second Covid wave continues. Most social distancing stocks were on absolute fire last week. Software stocks are building new bases: MDB, OKTA, FIVN, NOW, etc. Online marketplaces are perking up or acting constructively for the most part. Granted, the tech selloff on Friday could put temporary pressure on many momentum stocks. For the most part, the narrative remains in place and pullbacks are likely to be buying opportunities.
- Anything related to clean energy has been outperforming handily in the past few months. Last week, we saw an acceleration of this trend. Biden has promised to make zero-emission a top spending priority if he wins the elections. The world in general is going it that direction.
- Homebuilders ETF, XHB closed at new all-time highs on Friday. Record-low interest rates couples with plenty of liquidity have and expectations of serious infrastructure spending and rising inflation have created the perfect environment.
- Small caps gained 4% last week and outperformed significantly for the first time in a long time. It might be the renewed hopes for a second stimulus package. Sooner or later, it is coming, no matter who wins the elections. Or it might be just another temporary sector rotation. No matter the cause, when small caps rally, there are some excellent trading opportunities.
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