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Neither Covid nor rising inflation or Fed’s plan of tapering is scaring investors off. The large-cap indexes – SPY and QQQ, hit new all-time highs. The small-cap Russell 2000 had one of its strongest weeks in 2021 and closed above its 50-day moving average. The stock market is hitting on all cylinders in the midst of what is supposed to be a seasonally weak period for stocks. I guess we should not be really surprised by all that strength and relentless dip-buying. Money supply has gone up 40% in the past two years alone which is the fastest pace of increase in U.S. financial history. There’s so much money in the system and so many new millionaires (56MM by the last count) that pictures of rocks are selling for millions of dollars as NFT digital art. The world has invented entirely new asset classes to speculate on.
Covid cases, hospitalizations, deaths, and restrictions are rising but it seems financial markets are looking past this threat and betting on a recovery six months or so from now. At least, this is how I read the recent price action in airlines, hotels, and department store stocks. Most of them took a sizable haircut during the summer and are now starting to stabilize and even look constructively. I am staying away from them for now but keeping a close eye on the development in the space.
The negative correlation between tech and the so-called recovery stocks (mostly old-economy sectors like retail, financials, homebuilders, industrials) appears to be breaking. Both groups are now rising in unison. The software ETF- IGF closed at all-time highs. So did the semiconductor ETF – SMH. Financials and homebuilders are not too far behind.
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