Helped by positive macroeconomic data from ISM, University of Michigan (consumer sentiment), and the Labor Department (payroll report), the Dow Jones Average (DJA) crossed the 14,000 mark on Friday, the first time since 2007. S&P 500 (NYSEARCA:SPY) crossed the 1500 a few days earlier, while Nasdaq edged towards the 3,180 mark - all three indexes are up sharply over the last twelve months.
What does it mean for investors? Will the Dow Jones continue its ascend towards its old time high of 14,165, off to new highs or regress towards the 13,000 mark? What about the rest of the market? Will an interest rate spike spoil the party?
In a cover story in this weekend's Barron's, Andrew Bary argues that Wall Street is heading for new highs, favoring investments in high technology companies with low multiples like Microsoft (NASDAQ:MSFT) and Cisco Systems (NASDAQ:CSCO) in the technology sector, and Devon Energy (NYSE:DVN) and Apache (NYSE:APA) in the energy sector.
We agree with the Barron's assessment, as plenty of liquidity, rising money flows into capital funds, and an improving macroeconomic environment will add fuel to the rally. We should further point to two developments that may keep interest rates from spiking. First, while the employment situation has been improving, unemployment is heading closer to 8 percent rather than 6.5 percent, a number Bernanke and markets watch to determine whether interest rates should head in the other direction. Second, the yen tsunami is an "act of God" for US Treasuries. It will provide the very much-needed cushion as investors begin to flee bonds, concerned about the prospect of a stronger economy pushing interest rates higher.