Stocks climbed for a sixth straight day–the longest string of gains for the Standard & Poor’s 500 since August and with the Dow Jones Industrial Average turning in its best start for a February since 1931.
The S&P 500 finished the day ahead 0.34% and the Dow gained 0.76% on the session. The NASDAQ Composite was up 0.95% and the NASDAQ 100 added 0.67%.
The biggest winner for the day was the small cap Russell 2000, which gained 2.53% on strength in bank stocks and hope for more growth in the general economy.
Oh, and the hope for $1,400 checks to individual Americans, hundreds of billions of dollars in state and local aid and enhanced federal unemployment benefits. And continued progress on the Covid-19 vaccination program.
All this means, in my opinion, that the currently stretched valuations in this stock market are likely to get even more stretched in the coming days and weeks.
Earnings for the S&P 500 are currently on track to rise by 1.7% in the fourth quarter and that would be the first time since the companies in that index have reported aggregate earnings growth since the final quarter of 2019.
And optimism about the direction of the economy–the most recent projection from the Congressional Budget Office pegged 2021 GDP growth at 4.5%–is likely to get a boost in coming days if big consumer companies such as Coca-Cola (KO) and Disney (DIS) both due to report earnings this week, say cheery things about prospects for revenue and earnings in the first and second quarters of 2021.
It’s not that there’s nothing lurking out there that could go wrong–I don’t like the extreme increase in margin debt, for example, or the creeping increase in long-term Treasury yields. And at some point, if economic growth continues to pick up (and if Congress passes something like the Biden administration’s $1.9 trillion coronavirus stimulus/relief package) the Federal Reserve will start making plans to cut back on the $120 billion a month in bond purchases that are pumping so much cash into the financial system. I don’t think financial markets are going to like hearing that from the Fed and there’s a very real prospect of a replay of the 2013 Taper Tantrum at that point.
But I think those negative trends and potentially disruptive news are still weeks or months away from putting an end to this rally.
I don’t think it’s time to load up on risk, but staying on board with caution seems a reasonable tactic.