Discerning the likely direction of the markets today is like reading a cleverly written mystery novel. In both cases a macro focus is essential, but the devil is in the details.
The economy is obviously getting better. Interest rates are low, which makes corporate borrowing less expensive. The credit markets are recovering, thanks to the government's support of short-term credit facilities. And folks have become increasingly willing to spend money at the mall, as evidenced by two consecutive months of retail sales increases (not including autos).
But not all indicators are flashing green. Although the housing market is starting to revive, there is a large inventory of foreclosed homes in some areas that may depress prices.
Stock market valuations are another concern. Although the shares of many well-run large companies remain compelling, the recent run-up in equity prices has come from more speculative firms. If profit margins stop rising, a number of these smaller-company stocks could face some selling pressure.
The elephant in the room, of course, is the jobless rate. Currently at 9.8% nationwide, 43 of 50 states last month reported job losses. If the unemployment rate jumps suddenly, that could put additional pressure on the home prices.
