Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.

CONSUMER SPENDING: This grade has been increased to A- (very favorable). Gasoline prices continue to drop. These trends put more money in the pockets of Americans in 2016, and we have preliminary indications of consumers spending these gasoline savings.

THE FED AND ITS POLICIES: This factor is rated B (favorable). The U.S. economy can handle higher rates as long as the pace of future interest rate increases is slow.  Fed Chair Janet Yellen made clear in her press conference after the December meeting that the path higher would be “gradual”.

The Fed’s plan to gradually raise rates in the coming years won’t derail the economy and brings some certainty to the market, says Morningstar’s Bob Johnson. The market consensus on the 2016 pace of increase is somewhere around two to possibly three rate increase of .25% each.

BUSINESS PROFITABILITY: This factor’s grade is a C (average).

OTHER CONCERNS:  The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis.  On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 5 which is a decrease from the previous report because we see an increasing probability the U.S. economy will lead the world out of its recent slowdown.  While decreased, these risks still deserve our ongoing attention.