Momentum Monday – Inflation All Over the Tape

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The signs are all over the tape. Interest rates continue to spike. Soft and hard commodities haven’t been this strong in more than 15 years. The U.S. Dollar is in a downtrend. Stock markets around the world are in an uptrend led by small caps. It could be the new fiscal stimulus or the expectations for the Fed to remain accommodating for the foreseeable future or the vaccinations to end the virus sooner than most believe, but back-to-normal stocks continue to be on fire – airlines, hotels, travelling agencies, leisure stocks in general, oil & gas, financials, industrial metals like copper, nickel, steel, lithium, etc. In the meantime, many of the large and mega-cap stocks which are considered a sure thing in the long-term (AMZN, AAPL, MSFT, FB, NFLX, GOOGL, V, MA,  etc), are showing clear relative weakness. The narrative has changed at least for the time being. 

The stock market is often acting counter-intuitively. After all, who in his/her right mind would consider buying airlines that are still operating at half capacity and are dependent on government help and sell Apple and Amazon which are reporting record numbers? And yet, this is what is currently happening. The market is looking 6-12 months ahead and trying to discount a different story. The market doesn’t always end up being correct but between the process of discounting the future and the confirmation or rejection of it by reality, many stocks can go up 2-10x. This is why we pay attention to price action. The only things that change are the tickers of the leading stocks; their patterns remain the same.

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