THE TREND IS STILL YOUR FRIEND

Today’s encouraging report on consumer prices for February can only embolden those who say that inflation’s under control. With the news from the Labor Department that prices for consumers rose only 0.1% last month–down from a soaring 0.7% in January, you could almost hear a collective sigh of relief on Wall Street. The core rate (less food and energy) also advanced by a quiet 0.1% in February.
Meanwhile, housing starts slowed in February, falling 3.2%, the Commerce Department reports.
The Federal Reserve, at least for the moment, is being congratulated on keeping a lid on inflation while slowing the housing market. Arguably, housing is in dire need of some cooling if only to compensate for the boom of recent years that some say the central bank mistakenly engineered by keeping interest rates artificially low.
In any case, the pessimists are again on the defensive in the capital markets. Even the bond market is regaining the urge to buy again, with the benchmark 10-year yield at 4.66% as we write, well down from the near 4.80% mark of a few days ago.
Contained inflation, slowing but not crashing housing, and any number of economic reports in recent weeks giving statistical aid and comfort to the general notion that the economy’s humming along quite nicely. It’s not nirvana, but it smells like it, albeit in a new mild and not necessarily permanent packaging.
No wonder that risk continues to be rewarded quite nicely in the stock market so far this year. Small-cap stocks have run ahead of large caps at twice the pace in 2006 through last night’s close. Looking at the S&P 500 and S&P 600 on a sector basis reveals even bigger gains in some corners; meanwhile, there are no sign of losses this year, as the charts below reveal.
In the large cap space, telecom services has climbed nearly 14% through March 15. Over in small caps, materials are up almost 18% year to date. Momentum may not work as a long-term proposition, but if you’re arguing with the trend these days it’s been a costly quarrel so far.


Meanwhile, housing starts slowed in February, falling 3.2%, the Commerce Department reports.
The Federal Reserve, at least for the moment, is being congratulated on keeping a lid on inflation while slowing the housing market. Arguably, housing is in dire need of some cooling if only to compensate for the boom of recent years that some say the central bank mistakenly engineered by keeping interest rates artificially low.
In any case, the pessimists are again on the defensive in the capital markets. Even the bond market is regaining the urge to buy again, with the benchmark 10-year yield at 4.66% as we write, well down from the near 4.80% mark of a few days ago.
Contained inflation, slowing but not crashing housing, and any number of economic reports in recent weeks giving statistical aid and comfort to the general notion that the economy’s humming along quite nicely. It’s not nirvana, but it smells like it, albeit in a new mild and not necessarily permanent packaging.
No wonder that risk continues to be rewarded quite nicely in the stock market so far this year. Small-cap stocks have run ahead of large caps at twice the pace in 2006 through last night’s close. Looking at the S&P 500 and S&P 600 on a sector basis reveals even bigger gains in some corners; meanwhile, there are no sign of losses this year, as the charts below reveal.
In the large cap space, telecom services has climbed nearly 14% through March 15. Over in small caps, materials are up almost 18% year to date. Momentum may not work as a long-term proposition, but if you’re arguing with the trend these days it’s been a costly quarrel so far.
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One Response to THE TREND IS STILL YOUR FRIEND

  1. quintsquarry says:

    What’s the oddest thing about these two graphs? Telecom services – first for large caps and last for small caps. That’s odd.

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