There's nothing like some good news to tick this market off. Weekly unemployment claims post their sharpest retreat in a year, and stocks sell off. Add in a defiant European Central Bank that is unwilling to throw in the towel on the region's ruinous austerity measures—even as France looks set to elect a hard-left socialist—and there are still ample reasons to be scared. And yet, as my Breakout co-host Jeff Macke says in the attached video, "The market is talking, and what it's telling you is if you're bearish, you better come up with a whole new litany of reasons why things can go wrong, because stocks want to go higher."
The Consumer Discretionary Sector (XLY) is at an all-time high, and the strength of the Homebuilders (XHB) has been re-invigorated. Although this is impressive, I tend to think that a more nuanced shift is underway, rather than the stark "cash or long" thesis of my desk partner.
From my viewpoint, the way forward will be to stay in stocks, but in a defensive way. This is already revealing itself as demand for defensives (Staples, Health Care, Utilities and Telecom) grows, and last year's go-to theme (large cap multi national dividend payers) is also gaining converts.
"The market isn't stupid, Nesto," blasts Macke. He adds that, "if you don't listen and continue to yell about what shouldn't happen, they're going to take you out in a box."
Tomorrow's jobs report will either confirm a cooling trend or affirm suspicions that things have plateaued—until the next big data point shakes our nerve.