Today the manufacturing ISM data came in better than expected and that is acting as a catalyst for further market gains.
This has turned out to be a fast and furious rally, we have have rallied 65 points in the S&P 500 this week. A lot of positive data points come together very fast and I think most traders have been unable to participate in the rally(including me). So just this week you have seen
- The Greek situation resolved at least for the near term
- Cash Shiller housing index had an upside surprise
- Chicago Manufacturing PMI had an upside surprise
- National Manufacturing ISM data had an upside surprise
- Pending home sales were pretty strong
- Grain prices have crumbled which should keep food inflation in check
- We are at the end of the quarter and very few companies have warned, that indicates companies will most likely meet or beat earnings expectations
There always has to be some negative and that is coming from overseas, most of the manufacturing data in Europe and Asia has come in weaker. But net-net the positive data clearly outweighed this week.
I think the next interesting trade might be on the interest rate side. QE2 has ended so a big buyer of treasuries has gone. If the soft patch in the economy is ending then it is very possible that we will see a strong rise in treasury yields. Ten year treasury yields have already risen from 2.9 to 3.2%. But if the economy starts picking up, I think you could easily see yields go up to 4% in a few months.