There is not really much happening other than we continue to get good earnings and the market is responding with continued strength. American corporations have done a remarkable job in squeezing profits out of their operations. In the long run higher productivity is what creates wealth in an economy but in the short run it can be bad for job creation. Here is some of the stuff I am thinking about
- Tomorrow will be the highly anticipated FOMC meeting and Bernanke’s Q&A. I think tomorrow could be very important in setting the market direction for the next few weeks. If we get a feel the fed chairman is concerned about inflation then you will probably see a strength in the dollar, a sell off in commodities and probably a sell off in the stock market. If he continues with his theme about being more concerned about employment and less about inflation then the opposite will happen. I think the interesting issue from the stock market’s perspective will be what happens with oil. An easy fed should be good for the stock market but it will also probably spike up oil prices which can eat into global growth. The fed maybe reaching a point where rising inflation pressures might start negating any benefits of easy monetary policy. You cannot have a free lunch for too long.
- Retail sales reports from Redbook and ICSC-Goldman have come in a little better than expected. The consumers continued spending in face of higher oil prices is quite impressive.
- The market is clearly on a short term upswing and it has good momentum. I am still expecting a weak May but I am going to wait for the short term trend to turn down before I add any extra short positions. If Bernanke stays on the easy money route tomorrow, we could get a very strong short term move which might mark a blow off top for the intermediate term(3-6 months).