The S&P 500 and Dow Industrials are headed for a second straight positive week as they dig themselves out of the January correction. The rebound hasn’t been helped by economic data though, which continues to give bears reason to believe there could be more weakness in the market.
Through Thursday, the S&P 500 Index has gained 1.8 percent. The market was pulled higher by technology, utilities, healthcare and industrials, while consumer staples and consumer discretionary lagged. The gain in technology was notable, impart due to the minimal impact caused by Cisco (CSCO), which delivered a negative report. Shares initially dropped, but overall strength in tech helped pull the sector back towards. With a strong day in the markets on Friday, even Cisco could move back into positive territory.
On the negative end of the spectrum were consumer sectors. Retail sales slumped in January and jobless came in higher than expectations. The most commonly cited blame for the weak results was the weather, but this is a stretch seeing as the economic impact of Hurricane Sandy was unnoticeable in national statistics. Many economists predicted an impact from Sandy, but the economy powered right through it. Additionally, one of the areas that saw an increase in sales was gasoline, which contradicts the theory that snow kept people away from stores. That doesn’t mean bears are right to extrapolate a weakening economy, rather economists need to come up with better reason for being wrong in their forecasts.
The one point of strength for the bears is technical in nature: this latest rally has seen declining volume and the market has reached important short-term support/resistance levels. In other words, if this February bounce is a short-covering rally, we will know within the next few days.
As for the biotech and solar sectors that we monitor, some biotechnology indexes did break out to new all-time highs this week. Solar still needs to rally about 5 percent to hit its old high. The big winners in 2014 thus far have been gold and silver miners, as they benefited from the market rally coupled with weak economic data. When investors are optimistic and expect the Fed to extend or increase quantitative easing, precious metals can do well. Coming off a disastrous 2013, they have plenty of ground to recover.