As a polar vortex descended upon much of the nation in January, Wall Street felt a decided chill.  After closing out 2013 with record highs, stocks experienced an about-face.  The Dow has its worst January performance since 2009.

The Big Picture 

The S&P wasn’t immune to the volatility or the sell-off, scoring yet another record high on January 15th, 2014 then falling into negative territory for the year as the month ended.  February continued the volatility with triple-digit Dow moves the first five days of trading, the last two to the upside. 

That change of direction coincided with the changing of the guard at the Federal Reserve.  Janet Yellen made her first appearance before Congress as Fed Chair and signaled no new policy initiatives.   Economic data came in weaker than expected, but the weakness was widely assumed to be weather-related and shrugged off. 

Investor sentiment was on the rebound just in time for Valentine’s Day, and the love affair with equities resumed.  Unrest in Syria and Ukraine failed to damper the ardor and even Treasury securities and gold started to feel the love. 

I, Investor 

With spring around the corner, risk taking is back in vogue and animal spirits have returned to Wall Street.  Merger and acquisition activity helped the major market indices push through chart resistance, turn positive for the year and into new record territory. 

The fundamentals are positive.  Long term demand is supportive of continued gains in the labor market.  Weather-related weakness in housing, vehicle and retail sales will soon give way to pent up demand.  With an extension of the debt ceiling, there is little in the way of drama out of Washington, as members of Congress position themselves for the mid-term elections. 

Economic data out this week will still show the effects of a colder-than-normal January.  Tomorrow’s release of February consumer confidence may show a slight dip. Wednesday’s reading of January new home sales will also be affected by the recent cold weather.  Weekly jobless claims join January durable goods orders report on Thursday while Friday brings a possible revision to the strong fourth quarter GDP performance.  January pending home sales joins February’s reading on consumer sentiment and the Chicago purchasing manager’s index to round out this week’s calendar. 

Next week kicks off with January personal income and consumption figures, January construction spending along with February vehicle sales and Institute of Supply Management manufacturing index.  The Federal Reserve will release its Beige Book on Wednesday; Thursday we get the weekly unemployment claims series along with January factory orders and revisions to fourth quarter productivity.  January trade figures are out on Friday, March 7th along with February’s employment situation report. 

Barring any international surprises and further distortions in the jobs report, major market indices should continue their advance as shorts are forced to cover and new buyers come off the sidelines.

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