WITH earnings continuing to surprise on the upside and minimal technical resistance ahead, the bears may have to wait a bit longer for the much-anticipated end to the current stock rally.
The VIX, a gauge of investor anxiety, dropped last week despite unrest in the Middle East and oil prices are basically unchanged from two weeks ago. After posting its best week in the past nine last week, the S&P 500 has actually seen oversold levels tick lower.
“I expect the market to continue to rally despite the fact the economic news is sluggish in the jobs front,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors in California.
Government data showed on Friday that the US economy created 36,000 jobs in January, far fewer than expected, but the unemployment rate fell to its lowest since April 2009. Economists agreed a recovery in the labor market was proceeding but not gaining speed.
Upbeat signals in the economy, coupled with a positive bias in the current earnings season, should continue to propel equities higher.
More than 70 per cent of the S&P 500 companies have reported earnings above estimates so far, according to Thomson Reuters data. Investors expect aggregate earnings rose 37 per cent in the last quarter, the highest estimate for that period in more than 10 months.
The energy, industrials and technology sectors are “trading well into overbought territory,” according to a report from Bespoke Investment Group. But two recent weeks of declines are helping ease overall selling pressure, and the rally that started in September shows no signs of weakness.