Dollars and Sense: The bulls are on a rampage

Still recovering. The stock market, after a rough January, seems to think the economy is still in recovery. The S&P 500 roared back into positive territory for the year on Monday. Stocks got a lift on Monday, anyway, from better economic news out of Europe, where an index measuring the “business climate” in Germany topped expectations.

The reasons why. Germany might have explained Monday, but other forces are driving the markets upward. For one thing, the markets were at record levels in December, so most analysts thought they were due for a correction. They wanted to see earnings reports to see if they would be strong enough to support the stock prices. Stocks drifted downward during that wait-and-see period in early January. Then came a batch of worse than expected economic reports from the government. But it turned out that earnings for the fourth quarter and for the year finished surprisingly strong. Since Feb. 3, the Dow has climbed about 800 points and, as I mentioned, the S&P index is back in record territory.

Not all good. But, as is always the case, you have to look for trends in a riot of data, both good and bad. Among the bad news: the Conference Board’s index of consumer confidence fell to 78.1 in February, down from 80.7 the month before. Home prices fell for the second consecutive month in December. Prices dropped 0.1 percent from November based on the Standard & Poor’s/Case-Shiller 20-city index. First-time jobless claims rose 14,000 last week to 348,000, slightly worse than projected.

Yellen not yelling. Fed Chairwoman Janet Yellen testified before Congress on Wednesday and acknowledged that economic data has come in softer than expected during the past six weeks. But she also said what I have been saying for the past couple of weeks: At least some of the softness was due to severe winter weather. She also said the Fed’s “tapering” program was subject to review, but—with typical Federal Reserve coyness—she hedged her bets, saying only that she would keep an eye on things and make adjustments as appropriate.

Retail resilient. Though earnings season for most publicly traded companies is over, a number of retailers reported earnings this week because they have Jan. 31 year-ends, rather than Dec. 31 year-ends, so they can fully account for Christmas sales. They are the caboose of the earnings train. Their reports were generally pretty good, reflecting a solid holiday retail season and an improving economy. Home Depot was up after the company topped analyst earnings estimates and boosted its dividend by 21 percent. Macy’s also topped forecasts and saw same-store sales rise 1.4 percent. Macy’s shares rose 6 percent. Even Target, which was hit by a massive security breach, beat earnings per share estimates by a penny and met revenue projections. In the hours after the announcement, Target stock rose 4.4 percent. All in all, good news from the retail sector, and consumer sales are directly or indirectly responsible for about 70 percent of all economic activity in the country.

The week ahead. It will be a pretty big week for economic reports. February car and truck sales come out on Monday. Construction spending and personal spending numbers are also due out on Monday. Those individually don’t usually move the markets much, but if they all point in the same direction, either positive or negative, you can expect the markets to pay attention. The big report is the Friday unemployment report for February. The current rate is 6.6 percent, and of course analysts want it to drop. But the real number they’ll look at will be for job creation. Last month’s non-farm payroll number grew 113,000. Analysts were disappointed, and will be looking for it to rise this month, despite the problems we’ve had with the weather.