New All-Time Highs Are Enticing Buyers Struggling to Keep Pace With the Indexes
Friday is likely to be the highest Nasdaq volume of the year due to the Russell Index Reconstitution.
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New all-time highs are acting as magnets for the indexes as positive news flow frustrates bears convinced that something ugly is on the horizon. The Nasdaq and S&P 500 are hovering at new all-time highs early on Friday morning on headlines of progress in trade negotiations with China and the European Union.
Trade and tariffs have taken a backseat recently due to the Middle East conflict, but President Trump’s deadline is fast approaching, and no final headline deals other than the U.K. have been announced. Trump said that India may be close, and Commerce Secretary Howard Lutnick indicated the framework for a deal with China is in place and rare earth imports will start flowing soon.
The most important issue in the market currently is the Fed’s forecast that the impact of tariffs will soon be felt, causing an uptick in inflation and putting pressure on financial growth. There have been some signs of sticky inflation and cooling employment, but most of the data have been better than expected, and that has kept the market uptrend in place.
Another driving force for the market has been poor consumer sentiment and a high level of economic skepticism among "experts." This dynamic has caused poor positioning and helped to fuel more upside as market participants suffer from fear of missing out and keep putting more money to work so they don’t miss out on more upside.
Friday morning, the PCE inflation data will be released. This is the Fed’s preferred measure of inflation, but this is a report for May and will not fully reflect the impact of tariffs. Bears are convinced that data are going to start reflecting some stress soon, but for months now, they have been wrong, and it keeps pushing the indexes higher.
Another major event Friday is the rebalancing of the Russell indexes. Hundreds of stocks are impacted by this move, and there will be giant blocks of stocks traded with index funds at the closing bell. It is a highly technical process and renders the indexes meaningless as an indicator of fundamentals. While there will be some unusual movement in many stocks, it is extremely difficult to try to game the moves.
The action is upbeat early on Friday as those new all-time highs for the indexes are enticing buyers.
At the time of publication, Rev Shark had no positions in any securities mentioned.
