The S&P 500 continues forward with its bull trend and this has helped instruments like the SPDR S&P 500 Trust ETF (ARCA:SPY)) move back toward its record highs just below the 190 level. From a risk to reward perspective, this might lead many investors to start taking profits (or even start initiating outright sell positions) at these elevated levels. But when we look at things from a macro perspective, there are reasons to believe significant losses will be avoided in the coming weeks.
On the corporate level, we have seen some pretty good performances in earnings, with most companies surpassing analyst estimates and some key blue chip names showing relative strength. One of the best examples here could be found in Apple, Inc. (NASDAQ:AAPL)), where quarterly revenues actually surpassed the consensus estimates by about $2 billion. An earnings beat this size is massive, to say the least -- there are many publicly traded companies that don't even have market capitalizations that large. And when we see big name stocks start surging, the rising tide tends to lift all boats.
The positive sentiment has encouraged investors to start moving away from safe haven assets. This has put pressure on the precious metals space, with the SPDR Gold Trust ETF (ARCA:GLD) and the iShares Silver Trust ETF (ARCA:SLV) having trouble picking up steam and the PowerShares DB US Dollar Index Bullish ETF (UUP) seeing renewed losses against most of its currency counterparts. But in the chart above, we can see that the real upside activity can be seen in SPY itself.
Macro Data
But the good news doesn’t end there, as macro data supports the outlook as well. Key examples here can be found in consumer confidence numbers, and in the early precursors with the monthly Non Farm Payrolls report. Specifically, the ADP report (which measures monthly activity in the private labor market) came in particularly strong at 220,000. This suggests that the much more important NFP result will also come in higher than expectations and give the Federal Reserve the room it needs to continue with its tapering program.
These results will come out later this week, so we should expect some increased market volatility into the Friday stock session. But since the market positives have been widespread, it is starting to look like we will see a strong NFP print. “Supporting the outlook for a good NFP number is the rising consumer confidence data we have seen in recent months,” said James Ramsey, markets analyst at DebtWiz. “A good deal of this strength has come from stabilizing consumer debt levels and this has filtered into the labor market, as well.”
With all of this in mind, it makes sense to avoid sell positions in the major stock benchmarks, even though we are still trading at current levels. Assets like SPY and the United States Oil Fund LP ETF (USO) will post continued upside as long as all of these factors continue to support market sentiment.