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CRIMEA IN THE REAR VIEW MIRROR - By WSS Research Desk

By Carlos Guillen

Equity markets are continuing to make up for the losses posted last week, with the Dow Jones Industrial Average gaining over 90 points so far into today's trading session, which comes after finishing Monday's session up over 181 points. Clearly, investors are no longer concerned with the situation in Ukraine and are more enthused by today's better than expected housing data, which certainly defied Mother Nature.

On the Russia front, President Vladimir Putin has essentially flipped the bird on the economic sanctions proposed yesterday. As it stands, the Russian leader has signed a treaty that effectively makes Crimea a part of Russia. While there are still more approvals needed from Russia's Constitutional Court and from both houses of parliament, Putin has gotten his way, and it is now open season on country invasions. Nevertheless, investors do not see any adverse effects to the economy in the short term and have left Crimea in the rearview mirror.

Clearly, the gains in the Dow Jones Industrial Average Index this morning was mostly the result of housing permits, which was quite a surprise, providing some evidence that the economy is still slowly improving. According to the U.S. Census Bureau, building permits during February increased year-over-year by 6.9 percent and increased month-over-month by 7.7 percent to 1,018,000, landing higher than the Street's consensus estimate of 955,000. Concurrently, housing starts declined year-over-year by 6.4 percent and fell month-over-month by 0.2 percent to 907,000, coming below the Street's consensus estimate of 915,000. While strong building permits growth, which is a proxy for future construction, and worse than expected housing starts is not the optimal combination, at least it gives an indication of an improving backdrop in the near term.

Perhaps a bit encouraging today was that increases in the cost of living are not supporting the rumors of economic deflation. According to the Department of Labor, the Consumer Price Index (CPI-U) in February increased month-over-month by 0.1 percent; this compares with the Street's consensus estimate calling for a 0.2 percent rise. Excluding food and energy contributions to the price index, core CPI increased month-over-month by 0.1 percent, matching economists' average forecast. Overall, inflation still remains rather low, and while we do not believe there is deflation taking place, there is still a case for disinflation. Fed officials are carefully monitoring inflation as they wind down their bond-buying program. As it stands, with full year inflation of 1.56 percent, the Fed is not quite meeting its inflation target of 2 percent. This may reduce the likelihood of tapering during tomorrow's FOMC meeting; however, as it stands, the consensus is that there will be tapering of quantitative easing. But given the slowing inflation rate and the slowly increasing unemployment rate this past month, the tapering may be put on pause moving forward.

Overall, stocks are holding on very well to the gains posted so far into today's session. With Crimea out of the way, investors can now look to the still slowly improving economy for encouragement on making new investments. Let us just see what the FOMC has to say tomorrow.