Last Week in Brief.

October 29, 2013

Stocks begrudgingly elevated last week. The appetite for risk continued to rise. Yet, there was little real enthusiasm.
There seems to be a sense that, were it not for monetary policy, the global economy would be as punchy as Chris Brown on a Friday night.
Last week's non-farm payroll data simply underscored the idea that companies are not hiring.
Yet, in the "everything-is-backwards" parlance of Wall Street, the poor jobs report means that Fed tapering is less likely. A positive for stocks.
Also, banks are under attack by the federal government. They deserve as much. Still, it's not conducive their lending anything to small businesses. Which does not grease the economic wheels.
They say that bull markets climb a wall of worry. That certainly appears to be the case.
The economic data is blasé. Corporate revenue growth is weak. Jobs growth is non-existent. Europe has barely transcended its recession. The American public can't stand its politicians. China and other emerging markets are struggling. And the Cardinals are two games away from another world championship. Yet, amidst all the dreariness, the stock market sits at all-time highs.
The Good
Celebrated a birthday last week. My lovely wife and I dropped in on David Falk's Boca, downtown. An incredible culinary experience. A couple glasses of vino. Reasonably priced. David recently wrote a love letter to Cincinnati. It received some national attention. Check it out.
While the job market remains meek, the future is bright. Check out this cool presentation on The Future of Work.
The S&P 500 and the Nasdaq composite both reached new 52-week highs.
September's durable goods orders rose 3.7%, the biggest gain in three months.
The Kansas City Fed Manufacturing Index rose to 6, up from 2 in September. Further, rail traffic hit a six-month high, alluding to further positive economic activity.
Lastly, time to celebrate. Your government remained open for the last week and a half.
The Bad
The job market stinks, as non-farm payrolls revealed, coming in at 148k versus expectations of 180k. Further evidence comes from the labor participation rate, which hit a 35-year low at 63%.
Uh oh, is that wheezing sound from the housing market? Existing home sales fell 1.9% last week, the first decline in three months.
Perhaps that combination of weakness in the job and housing markets contributed to the drop in consumer confidence, which fell to 73.2 versus expectations of 75. Of course, following our recent, epic political slap fight, what have we to be confident about?
The Bottom Line
A plurality of investors and pundits seem to be anticipating a correction. CNBC's market gurus tell us it's overdue. The market is overvalued. The economy weak. Sentiment too confident. Yet, according to Cornerstone Macro, the conditions that typically precede a major correction (a 15% decline) are not in place.
CM's analysts posit that there are two major factors present for nearly all of the 12 major corrections dating back to 1973. These were: 1) a spike in oil prices, and 2) Fed interest rate hikes.
Other conditions often present? A rise in long-term yields. Slowing economy according to an ISM Manufacturing drop. Michigan Consumer Sentiment index over 90. An international crisis. Cheap or expensive valuations versus 10-year average. And global rate tightening.
So, perhaps this bull has legs? Maybe. But, the indices look "toppy" from a technical perspective. We'll hope for the best. And keep our stops tight.
Weekly Results
Major markets finished higher last week. The DJIA rose 1.11%, the S&P 500 gained 0.88%, and the Nasdaq advanced 0.74%. Small cap stocks climbed 0.32%. And the 10-year Treasury bond yield fell 7 basis points to 2.51%. Gold rose $34.55 per ounce, up 1%.

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