Despite all the doubts about the strength in the economy, the Dow Jones Industrial Average and the S&P 500 index posted new all-time highs last week, supported by private sector job creation and a much improved labor market picture. 

The Big Picture 

The U.S. economy produced 165,000 jobs in April, pushing the unemployment rate down to 7.5%, a four-year low.  Additionally, February and March payroll figures were revised substantially higher – pointing to a much more resilient economy than had been thought.   While construction and manufacturing job growth remains weak, professional service job growth led the pack with 73,000 jobs created; the leisure, temporary, retail and healthcare industries rounding out the top five. 

This private sector job growth occurred despite the drumbeat against regulation, taxation and Obamacare – all of which were to lead to the destruction of corporate America as we know it.  With 80% of the companies comprise the S&P 500 index reporting first quarter earnings, 72% of those have reported better-than-expected earnings.   

Even consumers, faced with higher payroll taxes and gas prices, have managed to continue spending, defying the naysayers preaching gloom and doom.    With reduced household debt and rising home values, consumer confidence has returned.  For those still lucky enough to have a 401(k), balances have returned to pre-financial collapse levels.  The improvement in household balance sheets points to a more confident consumer and the possibility of sustainable economic growth.

 New record highs in the stock market continue to entice reluctant and disbelieving investors off of the sidelines.  With the Federal Reserve sticking to a “zero” short-term interest policy, savers are getting no returns from savings accounts, CDs or treasury securities, forcing those looking for yield to turn to equities, making it hard to “sell in May and go away”. 

I, Investor 

With a fairly light economic calendar this week, look for some consolidation of the recent stock marketgains.  Old levels of resistance will now act as support:   14, 444 for the Dow Jones Industrial Average, 1535-1500 for the S&P 500 and 3150-3100 for the NASDAQ.  Resistance for the NASDAQ builds from Friday’s high of 3388 up to the all-time high of 5132.  The Dow and S&P are in unchartered territory. 

Focus on the budget deficit and calls for more austerity may quiet down with the release of the April Treasury balance this Friday, May10th.  Thanks to higher revenues and lower spending, the treasury is expected to pay down the debt for the first time in 6 years.  That won’t blunt the criticism of the Obama administration’s “rampant government spending” or calls for even more cuts to social programs designed to help the vulnerable.   

The following week has a bit more excitement data-wise.  Monday, May 13th sees the release of March business sales and inventories numbers along with April retail sales figures.  Tuesday, May 14th has April import/export prices on the docket.   Things get interesting on Wednesday, May 15th with the release of April produce price index, May Empire State manufacturing index, April industrial production and capacity utilization , May home builder sentiment index and the release of the most recent FOMC meeting minutes. 

 Next week ends with April consumer price index report on Thursday, May 16th along with real earnings and housing starts data for April and May’s Philadelphia Federal Reserve survey.  Friday the 17th brings us a look at April leading economic indicators, May consumer sentiment and benchmark revisions to factory orders data. 

The economy continues to gain momentum despite political gridlock and obstruction.  Look for yet another attempt to repeal Obamacare – for the 40th time (which won’t be the charm).  While Wall Street cheers when records are broken, the only thing broken in Washington is government, and that’s nothing to cheer about. 

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