EmailThe S&P 500 is three-for-three this month, having moved up or down at least 1.0% in all three sessions. Yesterday's move was textbook for a market that has been conditioned to buy on dips.
On the heels of Monday's 1.2% decline, the S&P 500 jumped 1.0% on Tuesday in a broad-based advance that saw all ten sectors register a gain. The tech sector, which has trailed noticeably this year, led the way with a 1.4% advance (Apple was up 3.5%).
The tech sector effectively gained a basis point for every basis point of growth the CBO is predicting for the US economy in 2013.
Specifically, the CBO is forecasting 1.4% real GDP growth for the US in 2013 based on fiscal tightening that has already begun or is scheduled to occur. Furthermore, the CBO expects the unemployment rate to remain above 7.5% through 2014. Music to the ears of a market that has been serenaded by the siren's song of Fed liquidity.
On a related fiscal note, President Obama made a proposal yesterday to pass a short-term budget that would avert the full impact of the automatic spending cuts scheduled to go into effect on March 1. For a market that has been conditioned to rally on headlines suggesting difficult decisions will be put off for a few months more, that proposal was pretty much right up its alley.
The trading pendulum, however, has shifted again this morning with European markets acting a little fishy.
Germany and France are both down 1.4%. Unsettling headlines regarding France's discomfort with the strengthening euro, the prospect of Italian bank Monte Paschi revealing larger-than-feared derivative losses, and reports a budget agreement might not get struck at the upcoming EU Summit have upset things a bit.
The euro is down 0.5% against the dollar, which is exhibiting strength against most major currencies.
Despite good earnings news out of Walt Disney (DIS), Polo Ralph Lauren (RL), and CVS Caremark (CVS), Europe's indigestion is causing some stomach discomfort here at home.
Currently, the S&P futures are trading 0.5% below fair value, which should pave the way for a lower start for the cash market.
