The increasing prospects of a $1.9 trillion Biden administration stimulus package, a good portion of which will end up in stocks, really stirred the market's animal spirits in the last five days. The stimulus will help households, small businesses and newly found social media driven traders. However when it comes to economic activity and employment, particularly in the service industries, we expect it to be weak until Covid-19 is brought under control. This may be at least until the end of Q2. A lot depends on the roll-out of inoculations and the public's gradual acceptance that it is safe to venture out, again.
All of this money flooding the economy is causing interest rates to rise, albeit from very low levels. At some point inflation will rise. We may be catching a whiff of it today with the rise of non precious metals and mining stocks and banking stocks. Small caps stocks continue to lead the market.
US, European and Emerging Markets remain in strategic Bullish trends. Last week's surge raised many stocks to overbought levels.
Equity Styles:Large Cap Growth remains dominant over Large Cap Value. Small and Mid-cap stocks continue outperforming Large Caps. Small Caps are very hot.
Ranked Sectors: o Leaders - Financial, Energy, Communication Services, Technology o Laggards - Real Estate, Health Care, Consumer Staples, Utilities
Interest Rates: 30-year and 10-year US Treasury Yields rose from last week and remain well above rising trend lines; the 10-year – 2-year Yield curve steepened and is strongly positive.
Currencies: The Australian Dollar, the Euro and British Pound, are all strategically Bullish, strengthened last week; the Yen had a selloff and is on Bear alert. The US Dollar is in a Bearish downtrend, continued strengthening a bit after reversing up from oversold level. Gold nearing Bear Alert level and continues weakening.
Market indicators strengthened sharply and strongly remain Bullish. Many are at the top of their ranges. At some point we will run out of buyers.