We’re halfway through the first quarter and the stock market bulls are hanging in, despite a furious start by the bears.

 The Big Picture

So far, the technical landscape has been defined by triple-digit swings, moving average violations and tepid market breadth while the fundamental backdrop has been affected by overseas developments.

Escalating tensions in the Mideast, an economic slowdown in China and Japan, and while the Euro zone’s economy shows signs of life, Greece is threatening to pull out of the Euro and tie it’s currency to the dollar.  The brokered solution to the Ukraine-Russia tussle is tenuous at best, while lone wolf terrorists continue to strike, most recently in Denmark, placing many western government security services on high alert.

Despite the uncertain and unsettling international outlook, improving conditions in the U.S. underpin the bullish argument. January’s unemployment report was unambiguously strong with benchmark revisions that revealed 2014 to have been the best year for job growth since 1999.

Jobs were created in most every sector of the economy, not just the low-wage categories of fast-food and home health care workers. Wage growth, absent through all of 2014, showed a $0.12 per hour increase in January to an average of $24.75 per hour.  Coupled with falling gasoline prices, consumers are growing a bit more confident.

Not confident enough, however, to go on a spending spree. January retail sales (excluding autos, gas, food and building materials) rose just a meager 0.1%.  Consumers, still smarting from the loss of household wealth in the Great Recession (and stagnant wages over the past 40 years), are paying down debt and shoring up savings instead of shopping.

The U.S. economy is on solid footing, enticing foreign investors and pushing yields on the 10-year Treasury to 2% and lower.  Foreign money is also flowing into stocks and real estate with rates at historically low levels and housing inventories steady.

I, Investor

Here’s where the markets stand year-to-date:  The Dow is up 1.1%, above 18,000 for the first time this year and just 35 points away from its last record reached on December 26, 2014.  The S&P 500 is up 1.85% year-to-date and closed at a new record high on Friday, February 13, 2015, eclipsing the old record notched December 29, 2014.  The NASDAQ composite is up 3.33% year-to-date and is just 155 points sway from its all-time high reached March 10, 2000. The Russell 2000 index closed at a new all-time high last Friday and is up 1.53% year-to-date.  

With 78% of the S&P 500 firms having reported fourth-quarter earnings, 71% came in better than expected.  As the earnings parade draws to a close, more attention will be paid to economic data.  This week’s calendar is sparse, with January personal income and consumption data, January housing starts and January industrial production and capacity utilization figures out on Wednesday, along with the minutes of the most recent Federal Reserve Open Market Committee meeting minutes.  Weekly unemployment claims on Thursday are joined  by the February Philadelphia Fed index and January leading economic indicators.

Next week’s calendar is a bit more exciting, with January’s Chicago Fed index and existing home sales out on Monday.  Tuesday we get February consumer confidence data along with Fed chair Yellen presenting her semi-annual testimony to the Senate, followed by her testimony to the house on Wednesday, along with new home sales data for January.  Thursday has the weekly jobless claims numbers along with January consumer price index and durable goods orders.  The week wraps up with revisions to fourth-quarter GDP, the Chicago purchasing managers’ index and consumer sentiment data for February.

Keeping the long game in mind, I’m cautiously optimistic that stocks will build on the strength of last week.

Speak Your Mind