U.S. Stock Market - Resilient Bull

U.S. stocks opened nicely higher this morning as Cyprus-related headlines became less threatening and investors focused instead upon friendly Federal Reserve monetary policies and relatively strong economic reports in the form of better than expected U.S. durable goods orders and favorable housing market data. The Case-Shiller index of property values in 20 cities climbed 8.1% last month, the most since June 2006. The latest Consumer Confidence report was weaker than expected, but this news was mostly ignored as bullish stock investors clearly won the day.

Here are today’s closing marks, with changes from Monday’s close:

                                                                                    Tuesday’s Closing Prices                   

Dow Jones Industrial Average                        14,559.65        +111.90           +0.77%

S&P 500 Index                                                  1,563.77        +  12.08           +0.78%

NASDAQ Composite Index                               3,252.48        +  17.18           +0.53%

Russell 2000 Index                                               949.82        +    3.97           +0.42%

Today's gains in most major U.S. stock indexes speak for themselves. Despite the effective dismantling of the banking system within Cyprus and the very likely forthcoming collapse in its domestic economy, global investors seemed to take the view that “what doesn’t kill you makes you stronger”. Although from my perch in the cheap seats, it’s hard not to notice that the Italian stock market was down 0.95% today and Spain was down 1.84% today. It's just a question of time (not much time) before the end game in Italy and Spain looks very much like the end game just witnessed in Cyprus.

Bottom Line: After today’s advance, the S&P 500 Index is now less than 2 points away from its all-time record high close. Maybe tomorrow will be lucky again for the bulls and maybe the S&P 500 Index will finally push through. For bearish traders, the rally of the last 4+ months has been a monster. U.S. stocks have “climbed a wall of worry” over this time period and the rallying call has been “damn the torpedoes” and “don’t fight the Fed”. William Dudley, president of the NY Fed, said today that the Central Bank HAS to press ahead with its bond-buying efforts because Congress is going about fiscal policy the wrong way. According to Dudley, fiscal policy, which is now the “opposite” of ideal, is going to be a drag on the economy in the near term and is a primary reason the Federal Reserve should press ahead with its $85 billion-a-month asset purchase program. Of course, this speech today from Dudley is the real reason for today’s vigorous U.S. stock market advance. Minor upside from here is still possible and even likely, but I continue to believe that the next major move in U.S. equity prices will be to the downside.