It was another extremely strong day for the market, with small caps leading the charge. What was particularly impressive was breadth, which was around four-to-one positive.
The easy explanation for the strong market action is that there is renewed optimism about some sort of stimulus deal. No one knows what will happen, but it is widely believed that something will be passed sooner or later.
That is part of what is going on, but it is not just hope of stimulus that is driving the buying. There is a high level of liquidity combined with reasonably priced stocks and poorly positioned market players. We are climbing the wall of worry, while at the same time expecting some solid earnings reports.
The easiest way to navigate this market is to stay focused on the price action and not to try too hard to compose a narrative to explain it. You can