Thank You Sir. May I Have Another? – 01/03/2013

Thank You Sir. May I Have Another?

Stocks soared to start off the New Year thanks to a Cliff deal finally being in hand. The basic construct seems like a reasonable compromise between the desires of the two parties. For me the spending cuts are too light, hopefully we can see the appropriate level of belt tightening in the next round of discussions.

All in all, this deal allows the US economy to stay on its Muddle Through course. That, in conjunction with the attractive valuation of stocks, should equate to more upside in 2013. That’s because the market will keep on the long term bull run until a recession is on the horizon or stocks become overpriced.

So with the focus returning to the flow of fresh economic and earnings reports it was nice to kick things off with 2 solid and improving manufacturing reports (PMI and ISM). Each showed impressive increases from the past with forward looking indicators on the rise.

Next up is the monthly jobs reports (ADP & Government). If we leap over those hurdles, then little is in our way up to 1500.

Note that Jared Levy believes that the journey to the edge of the Fiscal Cliff may have interesting implications for the upcoming earnings season. Discover why that is the case with some strategies to take advantage of this ripe opportunity.

Best,

Steve Reitmeister (aka Reity… pronounced “Righty”)
Executive VP, Zacks Investment Research

Cool Off Period

Stocks have been scorching hot since the beginning of June gaining nearly 15% in that stretch. And that move came as most investors were sure stocks could only go down. So as many got sucked into the rally last week, Mr. Market laughs and says time to take a rest.

That does not mean that the three and a half year bull rally is over. It’s just a good time to take a pause. Or see a modest correction in the 3-5% range as we await greater clarity on the obstacles facing the market:
•  European recession
•  Chinese growth
•  Fiscal Cliff

It is not a stretch to say that stocks could trade at 1500-1600 based on the current earnings picture. So we will climb those heights as we clear these three hurdles. Yet if those hurdles prove too high, and the earnings picture deteriorates, then lower we will go.

Right now I put greater odds on the optimistic case playing out with stocks moving higher by years end and into 2013.

Best,

Steve Reitmeister (aka Reity… pronounced “Righty”)
Executive VP, Zacks Investment Research

What’s Next: 1400 or 1500?

Fridays traditionally carry out whatever trend was going on earlier in the week.

If big bear on the prowl, then Friday will growl.
If big bull on the stampede, then Friday gains will proceed.

What it means for the next week and beyond is less clear. The two most likely scenarios are:

1)  Settle into range now. With low of 1400.
2)  Run to 1500 before correction.

In previous commentary I noted that #1 was the most likely as we attempt to clear other hurdles like the Fiscal Cliff. But I do see how the headlines of making new highs could attract a rush of fresh money from the sidelines before hitting a serious point of resistance like 1500.

Because #1 is not that ominous and #2 is bullish, then I will stay long this market for now. If the run to 1500 does ensue, then I will look for spots to take profits as shares will likely correct thereafter.

Best,

Steve Reitmeister (aka Reity… pronounced “Righty”)
Executive VP, Zacks Investment Research

6 Day Winning Streak for Stocks

Friday marked the 6th straight session of gains for the S&P 500. And it’s fourth consecutive day above 1400. So that obviously means that stocks will go up forever… NOT!

With virtually no fresh economic data to ponder, stocks simply coasted off the good tidings from the August 3rd revelation of solid jobs growth and above consensus ISM Services. This week there are fresh hurdles to clear in the form of some meaningful economic reports. Namely Retail Sales, Industrial Production, Empire State and Philly Fed.

If these reports are positive, then the next stop for the S&P is the highs at 1420.

If any weakness is revealed, then likely we will see the underside of 1400 for a spell.

Best,

Steve Reitmeister (aka Reity… pronounced “Righty”)
Executive VP, Zacks Investment Research