For
a few days at least, the stock market resembled its 2013 self, setting high
after high last week. Share prices rose smartly, over 1%, and the Standard
& Poor’s 500 index saw record closes in three of last week’s four trading
days, while the Dow Jones Industrial Average also had its all-time best close
Friday.

The
surge came amid thin volumes in a holiday-shortened week. Despite poor
first-quarter GDP numbers — which investors blamed on frigid weather — most of
the economic data, such as falling jobless claims, were positive.

Also
boosting stocks and spirits was a lack of geopolitical tension; an M&A
battle in the food industry; a recovery in small-cap stocks; and expectations
that the European Central Bank will do some monetary easing next week, says
Michael Matousek, head trader at U.S. Global Investors. Even the $2 billion
offer for the Los Angeles Clippers by former Microsoft chief Steve Ballmer
probably got animal spirits moving, he adds.

On
Thursday, first-quarter gross domestic product was revised down to an
annualized negative 1%, or contraction, from a positive 0.1%, weaker than
expected, though much of the revision came from lower inventories. Investors
mostly ignored GDP data, says Tom Carter, a trader with JonesTrading
Institutional Services. With little to dampen the mood, investors found it
tough to sit on the sidelines watching stocks rise day after day, and the
“pain trade was up,” he adds.

Jobless
claims for the week ending May 24 fell 27,000 to 300,000, below the consensus.
That, adds Mark Luschini, chief market strategist at Janney Montgomery Scott,
measures a more recent past than GDP and points to improving labor and housing
markets. It’s more indicative about the second-half, which should see rising
economic activity and a good climate for profit growth, says the bullish
strategist, who notes that outside the stock market, investors still face a
lack of better-yielding alternatives.

Last
week, the Dow rose 111 points, 0.7% to 16,717.17. The S&P 500 closed at
1923.57, up 23 points. The Nasdaq Composite index advanced 1.4%, or 57, to
4242.62.

This
week promises new data with “more gravity,” says Carter, and perhaps
a truer indication of market sentiment. Investors will most likely focus on two
figures from the Institute for Supply Management that could give a more
up-to-date picture of the economy than GDP did: the ISM May manufacturing
purchasing managers index on Monday, and the nonmanufacturing PMI on Wednesday (Barrons Online).

The
stock market closed sharply higher with the broad Standard & Poor’s 500
index setting an all-time record Friday, finally punching through the 1900
level after several failures in recent weeks.

Volumes
were low ahead of Monday’s Memorial Day holiday in the U.S. Macroeconomic data
continued to be positive, though mildly so, and stocks continued their hesitant
upward drift.

Next
week is without much in the way of potentially market-moving data. Market
participants point to the June 6 release of May non-farm payroll data and the unemployment
rate as indicators that could provide the next pivot point.

Last
week, the Dow Jones Industrial Average gained 115 points, or 0.7%, to 16,606.27.
The S&P 500 closed up 23 points, to 1900.53, an all-time high, as noted.
The Nasdaq Composite index rose 2.3%, or 95, to 4185.81. The Russell 2000
small-cap index tacked on 2.1% to 1126.19.

A
positive tone Friday was set early by reassuring words from Russian President
Vladimir Putin that his country would respect the results of Ukraine’s
presidential election Sunday, says Kimberly Forrest, a senior equity analyst at
Fort Pitt Capital Group. “We’ll see whether or not he respects that,”
she adds.

Nevertheless,
it had a calming influence on a light-volume day, she says, allowing the
market’s generally upward bias of recent months to reassert itself.

Economic
data continue a two-step-forward, one-step-back dance. Last week initial weekly
jobless claims increased slightly but new-home sales improved. Friday, the
Commerce Department said new U.S. single-family home sales rose to 433,000,
modestly above consensus but better than March.

While
economic news has been generally supportive of higher share prices, the market
remains hesitant and still has a wait-and-see attitude, says Timothy Leach,
chief investment officer at U.S. Bank Wealth Management. Investors are
apprehensive about the effect on the economy of the Federal Reserve ending its
quantitative-easing strategy later this year, he adds. It’s as if the market is
trying to navigate a river of doubt, using each data point as a stone to hop
across, he says.

Despite
the worry, and with bonds still yielding so little, stocks as an asset class
win out, argues Andrew Ahrens, who runs Ahrens Investment Partners. “You
can’t get a return on your investment elsewhere…and by a process of elimination
stocks are the place to be until interest rates go up,” he says.

Separately,
the venerable Dow Theory remains in a bullish trend for stocks, according to
Ned Davis Research. For youngsters, the theory goes that industrials make the
goods and transportation firms ship them, so when there’s confirmation between
the Dow and the Dow Jones Transportation Average, it’s a signal about stock
trends.

Both
the Dow and the DJTA are above their 200-day moving average. The Dow set a new
record in the previous week and the DJTA did this past week.

Source: Barrons Online