Are happy days here again in equities?

  • Seventy-five percent of the 400 companies that have posted results this season beat analysts’ estimates for profit. 
  • The S&P 500 has jumped 5.1% from a three-month low on Feb. 3. Earnings at S&P 500 companies rose by 8.3% in the fourth quarter of 2013. 
  • Gold seems to be heading for its biggest weekly advance since August. 
  • Factory production in the U.S. unexpectedly declined in January by the most since May 2009.

Equities: The March E-mini S&P 500 is up 5 points to 1829.25; we have a near-term target of 1831 according to the market profile. It seems to us that this market is overlooking the recent downturn in economic data as a short-term situation due to inclement weather. We believe we could be in for a “sizzling summer” for the S&P 500. If we start to see economic numbers really improving as weather starts to warm up, we could see the S&P 500 break through current 2014 highs. The major concern for bullish investors should be the possibility of an economic slowdown due to the taper.

Bonds: The March  U.S. 30-year bonds are down 5 ticks to 132’27; they seem to be in a very quiet trading environment this morning, with no major Fed updates or major economic data released today.  We would not be surprised to see the bonds head lower if indeed we start to see more positive economic data (most important jobs growth) as we head towards spring and summer. If this does happen, we will perhaps see a steady flow of tapering at each FOMC meeting, and bonds may not like that at all.

Currencies: The story today in FX markets is the strength of the British Pound. The pound is up 83 ticks today to 167.34, and our idea of the pound going to 1.70 could become a reality soon. We are also watching the Euro/Pound spread, thinking that this spread could be oversold very soon, as the rally in the pound has outpaced that of the euro. The Swiss franc future is up 25 ticks to 112.02, and it looks like 112.50 could be key resistance. We actually believe that the franc may head lower especially if the U.S. stock market continues to rally.

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