The stock market took a breather last week in anticipation of this week’s market moving inflation reports and Federal Reserve meeting. Stocks were overall positive, with small cap stocks performing very well and increasing the breadth of the rally.
This week’s economic news comes at a pivotal time, as stocks look poised to break through year-long resistance levels. Good news could strengthen the rally and entice into action those investors who have been sitting on the sideline. It’s classic FOMO (fear of missing out) when a virtuous cycle pulls more investors into the market, which pushes prices higher, and in turn pulls in more investors.
The other scenario is that of bad news which temporarily derails the rally at this important resistance level and brings fear once again to the forefront. I believe if this scenario occurs it will be of short duration, with a drop of 5% or less. The Nasdaq Index has rallied the strongest this year and could see a drop of this nature since it’s the most overextended of the major indexes. The broader market as represented by the S&P 500 has had a more subdued rally and doesn’t look overextended, which could mean the S&P outperforms the Nasdaq in the coming weeks.
As we near the end of the 2nd quarter I believe there’s a good chance that the stock market will get close to, or surpass its previous highs set almost 18 months ago.
Photograph by: Ryan Johnston on Unsplash
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