Don't Take The Bear Bait

 |  Includes: DIA, QQQ, SPY
by: Igor Greenwald

Finally, the news the bears have been waiting for. Durable goods orders for January slumped 4%, we learned yesterday—the biggest decline in three years, and four times as big a drop as forecasters expected.

Then came the news that the S&P/Case-Shiller index of home prices in 20 US cities slid 4% year-over-year in December, to a new low.

If this had happened last August, the Dow would have been down 200 in nothing flat. So it says a lot about the state of the market is—and the economy’s recent progress—that the major averages were instead hugging post-crash highs even before we heard about a big jump in consumer confidence.

The latter rose from 61.5 to 70.8, according to The Conference Board, approaching the levels last glimpsed (briefly) a year ago. “Consumers are considerably less pessimistic about current business and labor market conditions than they were in January. And, despite further increases in gas prices, they are more optimistic about the short-term outlook for the economy, job prospects, and their financial situation,” noted the lead researcher.

Which for once put consumers on the same page with investors buying every 0.5% market dip, in craven disregard of the 3% correction all the pundits just know is right around the corner.

One of these months, they’ll undoubtedly be right. But it might be from a significantly higher starting point.

Yesterday's bear bait deserved the short shrift it got. Durable-goods orders tend to be weak in January anyway, and this was likely to be especially true in 2012 because businesses had tax incentives to get some of this year’s spending done last year.

As for home prices, they’re a lagging indicator contradicted by fresher evidence of a pickup in demand, such as the perkier pending home sales data reported yesterday. Rising rental rates are proof of pent-up housing demand. Job gains also suggest that buying will pick up once credit access improves, as is likely.

On that score, the rapid decline of the weekly initial jobless claims to the neighborhood of 350,000 is a very bullish development pointing to more enthusiastic hiring in the months ahead. If that does indeed translate into a housing recovery, as has often been the case in the past, the US could finally enjoy a sustained recovery.

That goes a long way toward explaining the market’s willingness to look past some chilly data, not to mention the European mess, rising oil prices, and the crisis over Iran’s nuclear program.

Perhaps one of these threats produces the next black swan. But until it does, investors waiting for the dip should stock up on patience.