Consumer confidence also soundly beat expectations and this on top of the payroll tax increase which everyone was worried about that kicked in at the beginning of the year. Lastly, the ISM Manufacturing Index also blew away expectations as did monthly construction spending.
And lest we think the good economic news was confined just to the US, the Norwegian, Spanish, Italian and German Industrial PMIs all beat expectations (though still in contractionary territory). France was the only disappointment and its PMI came in flat.
The major indexes responded with a rally which reversed what looked like the beginnings of a correction on Thursday. At this point we only have four major indexes that have not reached all time historic highs. Two of these, the NASDAQ Composite and the NASDAQ 100 will not get there for years. Here's a weekly chart of the NASDAQ 100 going back 15 years:
In the short term, we're staring at a week coming up that's light on economic news. That could mean a drift higher or some profit taking. Traders on the floor of the NYSE feel that upside momentum could carry through to the new week but I've already highlighted my intermarket concerns surrounding the Euro above. And if there's nothing else that fills the news void the FOREX will fill that void!
We're also coming into February, which historically is not kind to the market, especially since 2008. The S&P has exceeded "Fibonacci Queen" Carol Boroden's Fibonacci extension target of 1511 but I'm not willing to proclaim an imminent run up to my target (1523) until I see how the ECB meeting goes on Thursday.
The market's tired and as we move into the month all eyes will begin to turn once more to Washington and how our elected officials are going to deal with "sequestration" - mandated spending cuts that are due to kick in on March 1st. Now, I'm ultimately of the opinion and have a basis to defend this position that sequestration will be taken in stride by the economy. Part of my rationale is based on the 50 billion Congress just allocated to "Sandy" victims but on top of that the billions P&C carriers are in the process of paying out to victims of that natural disaster. The Northeast will be humming throughout 2013! This additional stimulus will effectively neutralize the economic drag of fiscal cuts. And however remote the possibility may be, we cannot rule out people on both sides of the aisle in Washington actually coming together and negotiating a better set of spending cuts than the automatic sequester. I'm not holding my breath on this point but I do believe the ultra conservative fringe of the Republican Party has been isolated in the aftermath of the fiscal cliff debacle. Additionally, the tenor coming out of the Republican meeting in Virginia is much more conciliatory than we have seen since early 2011. As far as the liberal fringe of the Democratic Party goes, they always were more flexible if only because they tend to be a much more nebulous, fractious force in Democratic party politics and, in essence, can be bought :-)
However it shakes out, this is the only remaining issue we know about that has the potential to roil our market. And a cogent case can be made that the market has become inured to all the volatility of the past few years and recent evidences in December, 2012 suggest that any upcoming volatility may be substantially muted.
That's it folks. I basically said the same thing last week but this market is heading substantially higher and even an exogenous shock won't derail this rally.
Have a great week!
NOTHING IN THIS COMMENTARY SHOULD BE CONSTRUED AS AN OFFER OR ADVICE TO BUY OR SELL ANY SECURITIES, OPTIONS, FUTURES OR COMMODITIES. THE OPINIONS ARTICULATED ARE ONLY THIS AUTHOR'S WHO IS NOT A REGISTERED INVESTMENT ADVISOR OR BROKER ... yet!