Let me say right from the start that one of the most important things for investors to know at this time is that the Federal Reserve is not likely to stop its stimulus program in the near future, as some reports are theorizing.

The only caveat to this reality is if an unforeseen event or calamity takes place that would change the policies of the American central bank. One of those events would be a huge change in the jobs numbers, whereby the unemployment rate plunged to levels approaching the stated goal of 6.5 percent. There is nothing to suggest that will happen any time soon. Another would be rising inflation, which would betray the inevitable effects of the loose money policies the Fed is engaged in. Either of those two scenarios would bring a rapid response from the Federal Reserve.

Interestingly, many economists and business writers neglect the fact

The S&P 500 rose over 2% last week, hitting a new all-time high of 1614 on Friday, due in large part to a better-than-expected jobs report combined with massive positive revisions to previous monthly job totals. So far in 2013, the S&P is up 13.2%. NASDAQ is catching up, gaining 3% last week, and the Dow touched 15,000 before retreating to a new closing high of 14,974.

Stat of the Week: 635,000 Net New Jobs Created in Three Months

The biggest news last week was Friday's April payroll report in which the Labor Department reported that 165,000 payroll jobs were created in April, significantly better than economists' consensus estimate of 135,000. Even more dramatically, the February report was revised to 332,000 jobs (from 268,000) and March was boosted from 88,000 to 138,000, for a newly-revised total of 635,000 net new jobs in the last three months. Meanwhile, the unemployment rate

Is the American consumer genuinely spending? While the combination of rising home prices and higher 401(k) values may contribute to a temporary wealth effect, higher payroll taxes may begin to exact a toll. Consider the curious case of SPDR Retail (XRT). Its year-to-date 16.2% haul is better than most large- and mid-cap benchmarks. Equally impressive, XRT has remained resilient, holding firmly above a near-term trendline.

(click to enlarge)

On the other hand, the volume on down days is a great deal heavier than the volume of shares traded on up days. What's more, 20% of XRT's assets under management have disappeared in less than one month's time. It seems that profit-taking investors are convinced that apparel, specialty and automotive retailers will struggle to generate revenue in the weeks ahead.

If retail falls into the area of discretionary spending, one might be more inclined to purchase the stock shares of

For all of you in and around Boston and Waco, I certainly hope you and your loved ones are safe today. In addition to the unexpected tragedies there, last week also delivered the worst market week since last June (down 2.1% in the Dow and S&P 500). Despite this decline, I noticed that many high-dividend stocks were gobbled up on almost every dip. In addition, many companies that surprise Wall Street with strong first-quarter sales and earnings are being rewarded. This is the "flight to quality" I've mentioned.

Gold and Silver Collapsed due to a Strong Dollar and near-Zero Inflation

Last Monday, China announced that its first quarter GDP officially slowed to a 7.7% annual pace, down from a 7.9% annual pace in 2012's fourth quarter. Since China is the commodity-gobbling monster that consumes the lion's share of most industrial metals - as well as a rising share of the

US GDP is expected to increase 3.2%, according to The Capital Spectator's average econometric nowcast. That's unchanged from the previous nowcast, published on April 8. (GDP percentage changes are quoted as real seasonally adjusted annual rates.)

Today's average Q1 nowcast is a sharp increase from the meager 0.4% rise in last year's fourth quarter, as reported by the Bureau of Economic Analysis. The government's initial estimate of this year's Q1 GDP is scheduled for release on Friday, April 26.

The faster pace of growth in today's GDP nowcast reflects stronger data in several indicators reported so far this year through March. Although some of the data for last month showed signs of weakness—payrolls and the ISM Manufacturing Index, for example—the broad profile still looks encouraging for expecting a substantial improvement in Q1 vs. 2012's Q4. In fact, several estimates of Q1 GDP from other sources

What a difference a week makes! Last Friday morning, on April 5, the Bureau of Labor Statistics (BLS) reported a horrible payroll employment number that was well below consensus expectations. The S&P 500 (SPY) tumbled more than 20 points at the opening bell in reaction to the news. That panic began to abate at approximately 9:35 am, within five minutes of trading, when the low for the day was established at 1539.50. Five minutes of investor disdain for the single most important piece of economic data that is reported each month, and then it was off to the races. For the remainder of that day, and in the four trading days that followed, the S&P 500 climbed mechanically, without interruption, to new all-time highs. This was a relentless surge of more than 50 points from the Friday morning low for the S&P 500 in just one week. Surely, there

One consequence of the market's ongoing rally has been shrinking dividend yields. The Dow Jones U.S. Index (IYY), an exchange-traded fund that tracks the largest 1,200 domestic stocks, yielded just 1.9% at the end of last week. Within the slightly broader S&P Supercomposite 1500 index, just 263 members traded with yields above 3.0% according to AAII's stock screening and database program, Stock Investor Pro.

I'll admit that 263 sounds like a number that would still give income-hungry investors plenty of choices, but adding two key filters quickly narrows this list. The first filter is a requirement for dividend growth. Research from Ned Davis Research shows that shares of companies that raise or initiate dividends greatly outperform shares of companies that do not raise their dividends. The second is free cash flow. In order to continue paying and raising a dividend in the future, a company has to generate more

By Alex Bryan

You should be skeptical of anyone who claims to be able to predict the future from the past. If it were so easy to beat the market using past returns, everyone would exploit that relationship until it is arbitraged away. The momentum effect violates that principle. Momentum is based on the premise that securities that have recently outperformed will continue to do so in the short run, and those that have underperformed will continue to lag. While practitioners have been exploiting this relationship for decades, the idea has gained broad acceptance in the academic community only within the past 20 years. Momentum runs counter to the predictions of the efficient market hypothesis, but the evidence is too overwhelming to ignore.

Jegadeesh and Titman published one of the first influential studies on momentum in 1993, “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency

Every Thursday for the past few years I've posted an update on weekly unemployment claims shortly after the BLS report is made available. My focus is the four-week moving average of this rather volatile indicator. The financial press takes a fairly simplistic view of the latest weekly number, and the market often reacts, for a few minutes or a few hours, to initial the estimate, which will inevitably be revised the following week.

One of my featured charts in the update shows the four-week moving average from the inception of this series in January 1967.

The chart, above, however, gives a rather distorted view of Initial Claims. Why? Because it's based on a raw, albeit seasonally adjusted, number that doesn't take into account the 102% growth in the Civilian Labor Force since January 1967.

The Civilian Labor Force in the chart above has

The other day Rick Santelli used the word counterfeit to describe the gains in the stock market and any signs of growth/recovery in the economy (in the stats that have shown growth/recovery). Stuart Freeman from Wells Fargo who sees things more positively when he said in Barron's that "Individuals are moving back into equities. It's still very early." The context being there is still room for a lot of upside in this now 49 month old rally.

The reason to express the age in months is that some time ago Barry Ritholtz pointed out that the average bull market lasts for 38-39 months.

Santelli is pointing out what should be a perversion of how capitalism is supposed to work in that we have had bailouts and debt monetization but as yet there has been no catastrophic outcome. Freeman seems to be saying that there is no reason things should

Tomorrow's employment report is the major economic event of the week and one of the most closely watched indicators every month. The primary focus is on two items: The number of new jobs, based on the Establishment Survey (a monthly survey of businesses), and the unemployment rate, based on the Current Population Survey (a monthly survey of households).

There are, however, many additional metrics in the employment report. The data series I personally find most fascinating is the Labor Force Participation Rate. It's a measure of the Civilian Labor Force (employed or looking for employment) divided by the Non-institutionalized Civilian Population (excluding children under 16, the military and those institutionalized).

But what makes this series especially interesting is wide range of trends we can analyze based on various subcategories. Let's take a moment to study the labor force participation rate (LFPR) by age cohorts. The earliest year for which the

The latest AAII Sentiment Survey results continue to be volatile, with bullish sentiment pulling back and neutral sentiment rebounding. Optimism is very close to its historical average, while pessimism continues to hover slightly above its historical average.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.5 percentage points to 38.9%. This puts it about even with its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 5.2 percentage points to 27.7%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 1.3 percentage points to 33.3%. This puts pessimism above its historical average of 30.5% for the fifth consecutive week.

The recent volatility in our weekly Sentiment Survey results shows the divided nature of individual investors' thoughts about the length of the

US GDP is projected to increase by 3.1% in 2013's first quarter, according to the latest update of The Capital Spectator's average econometric nowcast. That's up sharply from the previous 2.0% nowcast for Q1, published on February 26. (GDP percentage changes are quoted as real seasonally adjusted annual rates.)

The rise in today's Q1 GDP estimate reflects stronger updates to several indicators used for computing the nowcast, including upbeat news on industrial production, retail sales, and private payrolls for February. The nowcast is revised as additional data for the quarter is published. This year's official Q1 data is scheduled for release on April 26, when the Bureau of Economic analysis will publish its initial GDP estimate.

Last year's fourth-quarter GDP increased 0.1%, according to BEA's second estimate. The third revision for 2012's Q4 data will be released on March 28.

Meanwhile, here's how The Capital Specatator's

Note from dshort: I've revised this update with data from latest Flow of Funds report released on today.

The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It's a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Fortunately, the government does the work of accumulating the data for the calculation. The numbers are supplied in the Federal Reserve Z.1 Flow of Funds Accounts of the United States, which is released quarterly.

The first chart shows Q Ratio from 1900 to the present. I've calculated the ratio since the latest Fed data (through 2012 Q3) based on a subjective process of extrapolating the Z.1 data itself and factoring in the monthly averages of daily closes for the Vanguard

Adding fuel to the great rotation debate, February inflows of $10.6 billion into equity exchange-traded products (ETPs) ensured the strongest two-month start on record for the category ($47.1 billion year to date). But a closer look at flows suggests less of a great rotation from bonds to stocks, and more of a "duration rotation" within the fixed-income category. In fact, compared with January's record ETP flows and risk-on behavior, investors in February seemed to be more focused on fine-tuning portfolios in anticipation of policy shifts and future rising interest rates.

Within equities, developed market equity ETPs led the charge in February, gathering $13.0 billion, including $7.3 billion in non-U.S. exposures. Investors' continued appetite for yield was evident in dividend, real estate, and preferred stock ETP inflows, which gathered $1.6 billion, $1.5 billion, and $0.7 billion, respectively. Dividend ETPs have made a significant comeback after stalling in the last quarter

The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) slipped again in Friday's update. It is now at 128.5 versus the previous week's 129.0 (revised from 129.1). See the WLI chart in the Appendix below. The WLI annualized growth indicator (WLIg) also eased, now at 6.8, down from two weeks ago's 7.5 (revised from 7.6). WLI has declined for the last four weeks and five of the last six weeks. WLIg has declined for three consecutive weeks.

ECRI posts its proprietary indicators on a one-week delayed basis to the general public, but last year the company switched its focus to a version of the Big Four Economic Indicators I've been tracking for the past several months. See, for example, this November 29th Bloomberg video that ECRI continues to feature on its website -- twelve weeks later -- along with the now clearly false

The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) slipped again in Friday's update. It is now at 129.1 versus the previous week's 129.7 (revised from 129.6). See the WLI chart in the Appendix below. The WLI annualized growth indicator (WLIg) also eased, now at 7.6, down from last week's 8.4 (revised from 8.3). WLIg has been in expansion territory since mid-August of last year, but is has been trending lower the past two weeks.

ECRI posts its proprietary indicators on a one-week delayed basis to the general public, but last year the company switched its focus to a version of the Big Four Economic Indicators I've been tracking for the past several months. See, for example, this November 29th Bloomberg video that ECRI continues to feature on its website -- twelve weeks later -- along with the now clearly false assertion that

We have long expressed the opinion that the U.S. economy will pick up steam and is the best place to invest your money currently. We disagree with the proponents of the printing money theory, the gold buffs theory of currency devaluation, and the rest. Our comments have been expressed in detail in previous blogs, wherein we gave detailed analysis of why we hold these beliefs.

We believe that as the economic cycle is starting its entry into the next phase, the economic circumstances will continue to improve in the U.S.A. The U.S.A. is the safest place to invest, as well as the place with the greatest profit potential. We urge readers to ignore unemployment and employment numbers that have been published. Firstly these numbers are severely skewed because they do not include those persons that supposedly have left the workforce, which is ridiculous, and furt

One of the key issues in structuring an asset allocation strategy is deciding how to divide up the world's equity markets. Everyone has an opinion, but it's usually best to start with the standard benchmark, otherwise known as relative market values based on capitalization. You may choose to second guess Mr. Market's equity allocation, but you should at least have an idea of what you're modifying, if only for perspective. Are you making a big bet in Asia vs. Europe? Is your U.S. allocation hefty vs. foreign developed markets? Are you underweight Japan vs. the rest of Asia? Knowing the answers to these type of questions isn't a silver bullet, but as a general rule, it's useful to know how your choices on risk factors compare before you start reshuffling the market portfolio. Indeed, the information on relative market caps may end up informing your decisions on how to customize

On Friday, March 9, we will "celebrate" the 4-year anniversary of the Great Recession's 2009 stock market bottom. Back then, the Dow Jones Industrial Average (DJIA) was below 7,000, a level first reached in 1997. Now its back to its all-time high of about 14,000, up 100% (and that excludes dividends).

(click to enlarge)

(Stock chart courtesy of StockCharts.com)

What makes optimism so important this year is that it's been missing from the stock market for about six years - two down and, remarkably, four up. In fact, it's been MIA for so long that the media and pundits are having trouble interpreting optimism's reappearance. The view by many is that optimism = bubble-top = risk.

That view is wrong. Optimism is a characteristic of normal times, when people have confidence in the future - i.e., a positive outlook. (For that bubble-top mentality, we need to ramp emotions up