Undeterred by another round of soft economic data released last week, investors sent the Standard & Poor’s 500 index to an all-time high. This year’s new highs, however, have been modestly above previous records, unlike last year’s sharp moves. Chalk that up to perverse circumstance. In normal times, investors want a growing economy and rising corporate earnings. Today, however, that otherwise rosy scenario almost certainly would mean higher interest rates. Good news would be bad news.

Rates eventually will rise, but the market consensus is that the Federal Open Market Committee, the Fed’s policy-making arm, won’t raise interest rates at its next meeting, scheduled for June 16-17. That helps explain why the market has been scratching its way higher. A September hike remains an open question. While jobless claims last week were decent, the latest figures on U.S. retail sales, consumer sentiment, and industrial production were all weaker than expected.

“There’s nothing out there that’s changing the market narrative,” says Michael Matousek, head trader at U.S. Global Investors. The market range has gotten even tighter in recent weeks, like a spring coiling. “If you get a little trading volume, it could be the start of the next leg higher,” he says.

The Dow Jones Industrial Average gained 82 points, or 0.5%, on the week, to 18,272.56, and the Standard & Poor’s 500 index rose 7 to 2122.73. The Nasdaq added 45, or 0.9%, to 5048.29.

LAST WEEK’S ACTION says “the Fed hike is off the table for June, and perhaps even for September,” says Adam Sarhan, CEO of Sarhan Capital. “The Fed has said its action is data- dependent, and the data [are] weak.”Sarhan says that a catalyst to propel the market out of its range trading could be the growing conviction that a September rate hike won’t happen.

Following a weak first quarter, the economy hasn’t shown much verve, notes Anwiti Bahuguna, a senior portfolio manager at Columbia Threadneedle Investments. There’s no reason for the Fed to tighten, she says.Expectations for earnings growth haven’t improved in the current quarter, and consumers haven’t stepped up their spending, so that doesn’t bode well for second-quarter growth, Bahuguna says, adding, “It might be a rocky period.”

Significant sales gains, and thus profit growth, probably won’t be seen until the fourth quarter. Meanwhile, summer is a traditionally weak season for stocks, with lower trading activity. What’s to get excited about? For the time being, it’s low rates.

(Source: Barrons Online)