Things on Wall Street look pretty good. On Main
Street, not so much.

The stock market jumped another 1.6% last week,
hitting an all-time high for the 36th time this year. Equity markets the world
over rose about 1%.

These
synchronized gains followed Thursday’s appearance in the U.S. Senate of Federal
Reserve Vice Chairwoman Janet Yellen, who has been selected by President Obama
to replace the central bank’s departing chairman, Ben Bernanke. Yellen
indicated there would be no change any time soon in the Fed’s policy of monthly
bond buying, a quantitative-easing strategy that has fueled much of the
market’s gain this year. In other words, tapering remains on hold. What little
concern remained about a policy shift effectively disappeared with her
comments.

On the week, the
Dow Jones Industrial Average gained 200 points, or 1.3% to 15,961.70, and the
Standard & Poor’s 500 index rose 28 to 1798.13. Both were new highs. The
Nasdaq Composite index added 1.7%, or 67, to 3985.97, and briefly crossed the
4000 mark for the first time since September of 2000. The MSCI World Index rose
1% on the week.

The Fed’s clampdown on interest rates has fueled a
headlong rush into risk assets such as stocks. The resultant wealth effect
appears to have spilled into the disparate New York City worlds of fine art and
taxi medallions.

An Andy Warhol painting sold for $105 million last
week, the highest price ever for the artist. A Francis Bacon work, “Three
Studies of Lucian Freud,” sold for $142.4 million, a record for a single
piece. At the first auction in five years of yellow cab medallions, a pair went
for $2.5 million, almost double the price at the previous auction. The city
restricts the number of permits to about 13,000 (Source:  Barrons Online).

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

CONSUMER SPENDING:  I grade this factor a C (neutral).

THE FED AND ITS POLICIES:  I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.  And, the FED announced on
9/18/2013 it intends to continue the highly accommodative policy to stimulate
the economy.

BUSINESS PROFITABILITY:  I continue to grade this factor an A (very favorable). 

NOTE:  the above grades are unchanged from last
week.

The stock market finished solidly higher in a
volatile week, pulling off a sharp recovery Friday from Thursday’s 1% drop. The
gyrations are making it harder and harder to anticipate how the market will
react to what is ostensibly good or bad news.

The downdraft was caused by a surprise move by the
European Central Bank to cut interest rates, and news that U.S. gross domestic
product grew 2.8% in the third quarter, much higher than expected.

Confused yet? There’s more.

While an ECB rate cut might have been expected to
buoy equity investors, the market took it badly, as an indication that European
economic growth—thought to be recovering, albeit slowly—isn’t improving.

Better U.S. GDP growth, therefore, ought to be good
for stocks—except that investors fear it will prompt the Federal Reserve to
begin tapering its monthly $85 billion worth of bond buying, an easing policy
that has fueled the stock rally.

Friday the market head-faked one way and then
finished another. The Labor Department released data showing payrolls rose by
204,000 last month, far higher than the consensus of 120,000. Stocks appeared
headed lower early Friday on fears that the better jobs news, too, would bring
on Fed tapering next month, said Kim Forrest, a senior equity analyst at Fort
Pitt Capital Group,

Then investors parsed the data more closely, she
said, finding that the jobs created were of a low-quality, part-time nature,
and that folks were still dropping out of the labor force. So maybe the Fed
won’t taper next month, investors figured, sending the Dow Jones Industrial
Average to a new record high.

These frequent turnabouts suggest, says Forrest,
that “Mr. Market seems to have ADHD,” or attention deficit
hyperactivity disorder.

The Dow rose 1% on the week, or 146 points, to
15,761.78, and the Standard & Poor’s 500 index headed up 9, to 1770.61.
Bucking the trend was the Nasdaq Composite index, little changed at 3919.23.

The volatility last week doesn’t bode well for the
short term. The momentum behind the market’s lunges is strong. Whatever
happened to the day when good news was good and bad news was bad? (Source:  Barrons Online)

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

CONSUMER
SPENDING:  I grade this factor a C (neutral).

THE
FED AND ITS POLICIES:  I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.  And, the FED announced on
9/18/2013 it intends to continue the highly accommodative policy to stimulate
the economy. 

BUSINESS
PROFITABILITY:  I graded this factor an A (very favorable).  NOTE:  3rd
Quarter profit reporting season continues this upcoming week.  Zacks Investment Research says
third-quarter earnings for the 355 S&P 500 firms that reported as of Oct.
31 were up 4.5% from the same 2012 period, with 67% beating expectations.
Revenue rose 2.9%, with 49% topping forecasts. 
We will maintain or grade of “A” based upon these results.

NOTE: 
the above grades are unchanged from last week.

Stocks ended little changed on Friday, falling from
the record highs hit on Tuesday. Small-caps fell. The backtracking was caused
partly by a Federal Reserve announcement on Wednesday interpreted by investors
as inching up the small risk that the central bank will taper its bond-buying
stimulus next month.

Adding to such fears was economic data released on
Thursday (such as the Chicago Purchasing Managers index) that were stronger
than expected.

“Sometimes
in the market, good news is bad news,” says Andrew Ahrens, CEO of Ahrens
Investment Partners. A stronger economy should be good news for companies, but
the Fed’s easy-money policy has benefitted stocks enormously, and investors
fear the removal of the punch bowl. Ahrens believes that a December tapering
“isn’t in the cards, but if there is one, it would be an insignificant
amount.”

On the week, the Dow industrials rose 0.3%, or 45
points, to 15,615.55, but below the 15,680.35 record. The S&P 500 edged two
points, to 1761.64, down from a high of 1771.95. The NASDAQ fell 21 points or
0.5% to 3922.04.

While October was a good month for equities, what
might be worrisome, near term, is that small-caps, which have led this long
rally, underperformed significantly. The S&P 500’s total return last month
of 4.6% topped the 2.5% monthly return from the Russell 2000, which fell 2%
last week.

That’s not a particularly good sign for the short
term, says Leuthold Group CIO Douglas Ramsey. Market volatility and sentiment
measures, like put/call ratios, suggest a sharp jump in volatility and a
downward lurch in stock prices this month, adds the CIO, who’s shorting
the iShares Russell 2000 exchange-traded
fund (ticker: IWM).

Perhaps the only thing that dents our conviction in
a near-term downdraft is that everyone seems to think that the market is due
for a drop. Momentum is stronger than sentiment—until it’s not (Source:  Barrons Online).

Here come the cabdrivers.

That kind of inertia is a tide the bears might find tough to reverse. Through year end, fund managers won’t be selling and hedge funds will be chasing performance (Source: Barrons Online).

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

CONSUMER
SPENDING:  I grade this factor a C (neutral).

THE
FED AND ITS POLICIES:  I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.  And, the FED announced on
9/18/2013 it intends to continue the highly accommodative policy to stimulate
the economy.

BUSINESS
PROFITABILITY:  I graded this factor an A (very favorable).  NOTE:  3rd
Quarter profit reporting season continues this upcoming week.  So far this quarter, the results are mixed. 

NOTE: 
the above grades are unchanged from last week.

Most
of the time, the U.S. stock market looks to 3 factors to support its upward
trend – let’s grade each of the factors:

CONSUMER SPENDING:  I grade this factor a C (neutral).

THE FED AND ITS POLICIES:  I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.  And, the FED announced on
9/18/2013 it intends to continue the highly accommodative policy to stimulate
the economy.

BUSINESS PROFITABILITY:  I graded this factor an A (very favorable).  NOTE:  3rd
Quarter profit reporting season continues this upcoming week.  So far this quarter, the results are
mixed.  We will continue to monitor the
results carefully. 

NOTE:  the above grades are unchanged from last
week.

Most of the time, the U.S. stock market
looks to 3 factors to support its upward trend – let’s grade each of the
factors:

CONSUMER
SPENDING:  I grade this factor a C (neutral).

THE
FED AND ITS POLICIES:  I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.  And, the FED announced (9/18/2013)
it intends to continue the highly accommodative policy to stimulate the
economy. 

BUSINESS
PROFITABILITY:  I graded this factor an A (very favorable).  NOTE:  3rd
Quarter profit reporting season starts this upcoming week.  We will watch the results carefully. 

NOTE: 
the above grades are unchanged from last week.