Can Bulls Keep Running After Mag 7 Leads a ‘Risk On’ Rally?
Here's how I'm playing things as some FOMO returns to Wall Street.
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When investors are anxious to jump back into the market, the first stocks they buy are the Magnificent Seven (MAGS) . They are big, liquid, and well-established, so they make it easy to put substantial money to work quickly. Folks on Wall Street call it "risk on."
That is what happened on Monday, as the Mag 7 led the market with a 2.7% gain. Breadth was solid with about 65% of stocks in the green and 235 hit new 12-month highs. The Russell 2000 and DJIA lagged with increases of less than 1%, but traders were happy to jump back into some favorites such as Palantir (PLTR) , Micron (MU) , and Eli Lilly (LLY) .
The primary catalyst for the buying interest was a potential deal for reopening the government. There are still a couple of hurdles to jump, but the market is anticipating that a deal will be done. Reopening the government helps to boost sentiment as it eliminates one source of uncertainty, but also opens the way for data releases, which will provide some insight into the health of the U.S. jobs market. It will also provide more clarity about the likelihood of a Federal Reserve interest-rate cut in December.
Recent worries about AI valuations seem to have been forgotten, at least for a day or two, and there is also increased optimism about a dovish Fed. If the weak jobs news continues, that should cement the likelihood of a rate cut and provide additional fuel as positive seasonality exerts some influence.
There were also good pockets of speculative action again, with Bitcoin (IBIT) acting better and quite a few small stocks moving up more than 10%. I’m sorting through the recent wreckage in smaller stocks and watching for some better technical patterns to form.
Can the bulls keep things running? They have some FOMO working now, and that may provide a little sustained momentum.
Have a good evening. I’ll see you on Tuesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
