Capital goods orders, a good proxy for business investment, have come roaring back in recent months after a big slump last summer. January orders were up 12.8% from September levels, and they have risen by a decent 4.7% in the past year. A few months ago, this indicator was casting doubt on the economy's ability to continue growing. Now that is no longer the case.
It's probably the case that last year's slump in orders reflected concerns about the looming "fiscal cliff" and the possibility of a significant rise in taxes and/or economic weakness. And that the recent jump in orders is equivalent to a big sigh of relief on the part of businesses that the issue was resolved satisfactorily.
This is yet another reminder that my thesis for the past four years still holds: With the market braced for a recession or worse, risk assets are going to rise in price as long as the evidence shows that the economy is not tanking. In other words, the equity rally that is almost four years old now has been driven not by optimism, but by a reduction in pessimism. The future has not turned out to be as bad as was expected. With this market, avoiding recession is all that matters.