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The key data point in today’s trading session is the service sector ISM Index for February which comes a little after the market opens. The service sector of the economy has been in a steady expansion mode for a while now and expectations are for today’s ISM reading to be little changed from prior month’s 55.2 level. A positive ISM reading along the lines of last week’s manufacturing ISM report could potentially be the catalyst that pushes stocks over the top in today’s session.
And that will be the big curiosity in today’s trading session – will the market make a new all-time high today? To be precise, broader indexes tracking smaller and mid-cap stocks are already in record territory. The Wilshire 5000 and Russell 2000 indexes have been in record territory since January. But those indexes simply don’t have Main Street name recognition that the Dow Jones Industrial Average has. And the Dow is less than 0.3% below its October 2007 previous high – a mere 37 points. The S&P 500, the real proxy for corporate America, is a little under 3% below its 2007 all-time high. Wouldn’t it be something for the Dow to make a new all-time high today on Day 3 of the budget sequester taking effect. There will be a headline in some local paper along the lines of ‘Stocks Reach New Highs on Washington Budget Cuts’ (they have better headline writers).
The market’s momentum has simply been amazing, particularly from it November lows. It didn’t skip a beat for the ‘Fiscal Cliff’ and has given the sequester a big shrug. The market found the Q4 earnings season to be reassuring enough even though the overall earnings picture is anything but reassuring. Investors are simply way too optimistic in their earnings outlooks. I have been skeptical of the market’s gains and still can’t find a fundamental support for where it has reached.
The biggest reason for where we are in the market is the Fed – Bernanke is paying for the stock market momentum with $85 billion in bond purchases a month. Hard to tell exactly where the U.S. economy and market will be without the Fed’s active support, but it will definitely be a lot lower than where it is today. ‘Fighting the Fed’ may not be a winning a strategy, but that doesn’t mean we have to defend and justify what’s going on. But perhaps it’s not a bad idea to set aside our misgivings, even if only for one day, and celebrate should the Dow make a new all-time high.
The ISM Services Index is scheduled for release today at 10:00 AM EST, and is expected to increase to 55.3 in February after decreasing to 55.2 in January and increasing to 56.1 in December.