We're in the midst of a market 'melt

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Confession time again: I’ve been covering financial markets for 20 years, and sometimes I don't entirely understand the jargon. To be fair, there's a lot of it.

Take "melt-up." Picture an ice cream cone's drips ascending to the sky rather than creeping ever closer to your hand on a hot day, as I do every time I hear the phrase. Now erase that image, because apparently it has nothing to do with the actual phenomenon.

Luckily, I have lots of help in the form of equity-market veterans.

"It's just Wall Street slang, essentially, for a market that won't go down, even if there are headlines that mean it should," clarified Tom Essaye, Sevens Report Research Founder and President.

Where the melting comes in, Essaye explained, is the spreading nature of the rally. It keeps going, pulling in more stocks and eventually pulling in more investors who may have been reluctant to chase it. Witness the range-bound S&P 500 that broke out on Friday, which for a little while Monday was up 20% from mid-October's low. (It closed just under 20%.) Folks, we've almost got a new bull market on our hands.

Keep an eye on which stocks are participating. The bulk of gains this year has been thanks to a handful of large-cap tech stocks, driven by AI enthusiasm. Thursday and Friday's boost was more broad-based, as evidenced by a ratio of the S&P 500 to the S&P 500 Equal-Weight Index (the little downward bit at the end in June is the equal-weight taking a bite out of the standard S&P 500).

The longer the overall rise persists, the more difficult it is to ignore. "If you’re underweight, you gotta be waking up today feeling nervous. Because this thing has momentum in the near term, and you’re missing it," Essaye told Yahoo Finance. Essentially, the FOMO crowd may start coming out of the woodwork to chase the rally.

But as usual on Wall Street, there is an abundance of opinions on how long the rally will last.

On the bearish side of the ledger stands Morgan Stanley (as usual), whose strategists are calling for a 16% drop in US corporate profits by the end of the year, with the S&P 500 falling to 3,900.

Then there's Julian Emanuel of Evercore ISI, who raised his year-end target for the benchmark to 4,450 following Friday's jobs report, and reminded investors that stocks can rise even when earnings per share fall – as long as results are "less bad" than feared.

I’m back to the ice cream after all. We’ll see if it continues to defy gravity.

Update 6/6/2023: A previous version of this column said the S&P 500 closed 20% off its lows. It was only above 20% during the day.

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