Courtesy of John Nyaradi.
U.S. stocks and major indexes opened the week with gains, shaking off fear and a weak economic report
Investors continued to believe that it is smooth sailing ahead as many stocks and major indexes all showed gains today with the Dow Jones Industrial Average (NYSEARCA:DIA) gaining 0.39%, the S&P 500 (NYSEARCA:SPY) adding 0.73%, the Russell 2000 (NYSEARCA:IWM) jumping 0.96% and the Nasdaq 100 (NYSEARCA:QQQ) climbing 0.66%.
Positive news came from Germany, where investor sentiment improved, while negative economic news came in the form of the home builder’s index which declined to 46 from last month’s 47 and missed expectations in the 48-49 range.
Read “European Stocks Explode on Tuesday”
Read “Homebuilder Confidence Takes A Dip”
On a technical basis, stocks and major indexes remain in overbought territory at levels that generally lead to some magnitude of correction.
Fundamental risk remains as the March 1st deadline for the sequestration government spending cuts looms.
Congress has gone on vacation and both sides, as well as most investors, seem to believe that another 11th hour save will prevent the mandatory cuts from going into effect. Certainly this could happen, but if not, the net result of deep Federal budget cuts will not be positive. Most analysts put the cost of the sequester at 1% of GDP, and on top of the 1.5% hit generated by expiration of the payroll tax holiday, the U.S. economy will find itself perilously close to recession.
So the clock continues to tick, but for today, nobody seems too worried as VIX, the “fear index,” declined 1.2% today, and one of the most popular VIX ETNs, iPath S&P 500 Short Term VIX Futures, (NYSEARCA:VXX) lost 4.3% as fear recedes from the markets and Congress and the White House stick to their positions with no sign of compromise or urgency in the offing.
Bottom line: Stocks grind higher in the face of technical and fundamental headwinds. The nominal all time high for the S&P 500 (NYSEARCA:SPY) is 1565 and for the Dow Jones Industrial Average (NYSEARCA:DIA) is 14164, both set in October, 2007. Those levels have proven to be significant stumbling blocks in the past and will be pivotal levels again in the coming days and weeks.
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