March 5, 2013
The Dow Jones Industrial Average has been flirting with its all-time high for several sessions and any positive economic data this week could trigger the confetti. But some analysts say behind the hoopla are signs of a pullback.
The Dow's all-time intraday high was 14,164.53, a record set on Oct. 9, 2007. The blue-chip index has been within 50 points of that level since last week.
"The closer we get to these milestone events, the market's going to want to hit it," Mark Eigel of Russell Investments told CNBC. If not the ISM services report, a good jobs report could push the Dow to a new record. "The key question will be whether we hold it," he added.
Global markets find themselves caught between growing economic and political uncertainty and extraordinary central bank support. Automatic spending cuts have kicked in in the U.S., China has taken new steps to tamp down its property market and an electoral stalemate in Italy could mean a new election. But with the Fed supporting stocks and a new high for the Dow within reach, positive U.S. economic data on Tuesday could push the markets to a new record.
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Economists are looking for the February ISM non-manufacturing index to come in at 55, down slightly from the 55.2 reading in January. A reading above 50 indicates expansion and a better-than-expected reading could be what pushes markets upward.
"There is no conviction in the market from what we can see," Keith Bliss of Cuttone & Co. told CNBC on Monday. "You look at this grind higher and you have dividend payers and defensive stocks moving along with it. Generally, that's a trend you don't see."
He noted that the market leaders have been consumer staples and the utilities. "Now that is just bizarre behavior for a market that's trending higher," he said. "I think the bias for this market is downward trending." It could take a slightly negative jobs report or ongoing political paralysis in Washington to tip markets into a slide, he said.
Concerns about the health of the economy may be one reason for investors' ongoing defensiveness. The $85 billion in U.S. spending cuts officially took effect over the weekend. While stocks so far have largely ignored the concerns over the sequester, analysts say signs the cuts are starting to weaken the anemic economic recovery could eventually move markets.
According to Austan Goolsbee, an economist at the University of Chicago Booth School of Business, the economic consequences of the sequester are not dire, but it could cut growth below 2 percent. Goolsbee told CNBC if growth falls below 2 percent, "I think we ought to expect the unemployment rate to start drifting up again because that's below the productivity rate."
The February jobs report is due out Friday. Economists currently expect to see 160,000 jobs added to nonfarm payrolls and for the unemployment rate to hold at 7.9 percent, according to consensus estimates from Thomson Reuters. That is well above the 6.5 percent level of unemployment the Federal Reserve is targeting before it begins to withdraw its highly accommodative monetary policy.Fed vice chair Janet Yellen on Monday said the central bank's aggressive monetary stimulus is warranted since the economy continues to operate well below its full potential.
This piece originally appeared on CNBC.com.
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