What’s happening now, and what it may mean going forward.

A quick summary

  • The dip-buyers are now just 2.9% away from making a new market high.
  • The earnings recession continues, but forward estimates look rosy.
  • Inflation is ticking higher from a very low base.
  • Big Tech has lost some of its mojo.
  • A COVID-19 vaccine is getting closer but is not yet in sight.

The S&P 500 was up 3.8% last week

It was a strong week, up 4 out of 5 days. The only downer was Tuesday, when Trump said he was ending congressional talks regarding a second round of stimulus payments until after the election. That didn’t play well, so he reversed course on Wednesday and the market rallied.

What caught my eye on the above chart, by Jill Mislinski from AdvisorPerspectives, were the three consecutive gap openings after Tuesday’s selloff. Gap openings are not uncommon, but three in a row are. It’s a sign of bullish enthusiasm.

This is the most overstretched market in history

If you believe, as I do, that mean reversion (regression to trend) is a natural law of the market – as gravity is to physics – this chart should concern you. (It also comes from Jill Mislinski.)

The S&P 500 is now trading 132% above its long-term trend. That’s higher than it was at the height of the 2000 Tech Bubble, and higher than the 1929 peak when cabbies and shoe-shine boys were giving stock tips to their customers.

The Sector Returns

Sorted by YTD returns, this table gives a snapshot of where the money is being invested. Technology is the dominant sector at every time frame (with the exception of 1-Month), and Energy comes in dead last.

Earnings and Earnings Estimates

The chart below shows the S&P 500 (blue line, left