Wednesday, March 05, 2014

New Highs Abound

Markets rallied strongly yesterday after news that Putin let much of the air out of the escalating tensions in the Ukraine.  Most major indexes powered to new highs.  Overnight there were no further developments on the Ukraine.

This morning stocks have been hugging the flatline and we will have to see how the market digests yesterdays outsized gains.  We did get some economic data this morning that was on the weaker side, but some will still question how much the inclement weather effected February's data.

The ADP Employment report for February showed the private sector added 139,000 jobs, below expectations.  And the ISM Services Index for February fell to 51.6 from 54.0.  The services sector is the largest part of our economy, so this figure will be watched closely to see if it bounces back in March.

Bond yields on the 10-year were higher in early trading, rising to 2.71%.  But the weak ISM survey knocked them back down and yields are currently hovering near 2.69%.

Asian markets were mixed overnight.  China fell -0.9% after the National People's Congress said its GDP target for 2014 is 7.5%, the same as in 2013.  The market viewed this as a bit disappointing, but we think it would be a victory if China could sustain that rate.

Europe's markets are also mixed, with peripheral markets outperforming.  Eurozone GDP rose 0.5% on a year/year basis. And the Eurozone services PMI improved to 52.6 from 51.7.

Commodities are mixed.  Oil prices are down a touch to $102.66, while gold prices are up a tad near $1339.

The volatility index which plunged yesterday from 16 to 14 is down a little further to 13.95 so far.  This is a pretty low level for the VIX, although we have seen it get down to the 12-13 level if the market keeps rallying.

Trading comment: No change in our thoughts from yesterday.  The market continues to hang in there and frustrate the bears.  Fresh breakouts in quality stocks can be bought, and leading stocks pulling back to support is another attractive entry point.  With bond yields this low, most areas of fixed income remain unattractive for the long-term investor.  This is still a frustrating environment for income investors, but we are still hopeful that as the economy slowly gains strength into the second half of the year bond yields will rise and offer some better opportunities.


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