The stock market gets a little scarier every day—and it’s not even falling.
On the surface, there doesn’t seem to be much to worry about. The Nasdaq Composite advanced 1% to 12056.44, while the S&P 500 rose 1.5% to 3580.83, and the Dow Jones Industrial Average, for once, led the market higher by climbing 453.39 points, or 1.6%, to 29,988.05. The Nasdaq and S&P both closed at record highs, while the Dow finished just 1.5% away from its own.
“We are witnessing a major melt-up,” says NatAlliance Securities’ Andrew Brenner.
And melt up it did.
The Dow was up 0.8% at 11:30 a.m. Wednesday and trading was quiet. It started moving higher from there, slowly at first until accelerating, and was up more than 500 points before a small pullback. There was no real explanation for the stock market’s move. Investors shrugged off poor ADP jobs data and seemed unresponsive to better industrial-production numbers. Ultimately, it just wanted to go higher.
And the Dow managed those gains without Apple (ticker: AAPL) and Salesforce.com (CRM), the two stocks with the most recent momentum—Apple on its stock split, Salesforce on its addition to the Dow and better-than-expected earnings. No matter. Coca-Cola (KO) and Dow Inc. (DOW) were able to do the heavy lifting instead. Both stocks were up more than 4%.
For one day at least, the market action seemed to imply that the craziness that had inhabited the Nasdaq had found its way to the rest of the market. “What we’re seeing the first two days of September is FOMO spreading beyond the Nasdaq,” says Julian Emanuel, chief equity and derivatives strategist at BTIG, referring to the fear of missing out.
Warning signs abound.
The VIX has gained 1.7% to 26.52, a sign that expected volatility is rising with the market. Usually volatility falls when the market rises. The CBOE Nasdaq-100 Volatility, or VXN, jumped 6.1% to 36.80. But that doesn’t mean that the end has to come immediately, Emanuel says. “We have said for the last two weeks that the Nasdaq is in a blow-off phase. We don’t know if it’s the beginning, the middle or the end.”
NatAlliance Securities’ Brenner agrees. “This has gone a lot further than I thought it would,” he says. “And it will correct more than I think it probably should.”
Consider that a warning.
Write to Ben Levisohn at Ben.Levisohn@barrons.com
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September 03, 2020 at 05:05AM
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