Economic Outlook: Stocks have had a winning year, but gravity hasn't gone away

By ANTHONY HALL, United Press International  |  Feb. 11, 2013 at 9:35 AM
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The question for Wall Street this week is how far ahead are stocks and when is the correction going to come?

Whatever goes up must feel the tug of gravity at some point and stocks have been on a winning streak since the beginning of the year. Having felt the weight of a discordant and dysfunctional government with fears of a fiscal cliff looming, stocks were at least slightly depressed by the time President Obama signed the American Taxpayer Relief Act of 2012.

Despite the classically misguided title of the act -- the bill raises taxes on the wealthy and it was signed in 2013 -- its appearance lifted that huge weight off the economy, which was the fear of seeing taxes rise across the board and spending cut simultaneously, a one-two combination that many feared would upend the sluggish recovery.

Such as it is, the Nasdaq and Standard & Poor's 500 indexes came out ahead for the week on Friday last and both reached milestones. The Nasdaq index closed at a 12-year high, while the S&P 500 reached a five-year high and closed with gains for six consecutive weeks.

The Dow Jones industrial average is not lagging, but had an off week last week, dropping slightly behind Monday through Friday, but managed to close above 14,000 points Friday, Feb. 1, for the first time since October 2007.

The ebb and flow is not entirely political. While lawmakers debate the spending side of the 2013 budget, economic data was strong before the end of the year, which meant worries over the fiscal cliff were putting a stopper in what might have been a more gradual run to higher ground. Once those fears dissipated, investors could begin adjusting for the positive figures they had been ignoring.

Well and good, but January's upsurge came with a turnout in those positive reports, all of which can be summed up in the fourth quarter gross domestic product report released Jan. 30 that showed the economy contracted 0.1 percent October through December.

Surprise, surprise. Not many saw that coming. Various surveys showed consumers ahead of the curve. They were worried while investors continued to party on Wall Street, compliments of fourth quarter corporate reports that gave little indication it was time to pull back.

This gets us to Monday morning. For the week, Britain's consumer price index will be released Tuesday and the Bank of England's inflation report is to be released Wednesday. U.S. retail figures are also due Wednesday and gross domestic product reports for Germany and the European Union for the fourth quarter are expected Thursday.

In international markets the Nikkei 225 index in Japan lost 1.8 percent while the Shanghai composite index in China added 0.57 percent. The Hang Seng index in Hong Kong rose 0.16 percent while the Sensex in India shed 0.12 percent.

The S&P/ASX 200 in Australia lost 0.24 percent.

In midday trading in Europe, the FTSE 100 index in Britain gained 0.27 percent while the DAX 30 in Germany was flat, dropping 0.06 percent. The CAC 40 in France climbed 0.53 percent while the Stoxx Europe 600 fell 0.37 percent.

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