3 Factors Driving the Market Higher
by Mitch Zacks, Senior Portfolio Manager



The stock market is hitting multi-year highs as U.S. equities are shrugging off any negative news. We’ve identified 3 factors that are driving this market higher. We discuss each of them below: 


1. US Jobs Numbers

Around 200,000 jobs were added in November, December, January, and now, just recently, in February. We haven’t seen this strong of a flow in jobs data in over five years. Both ADP jobs data and the Federal government payroll data have showed strength. Unemployment claims were also recently reported at a five-year low.

In September 2012, we saw the U.S. economy adding 100,000 jobs a month. At that time, there were concerns of an economic slowdown caused by the “Fiscal Cliff”. This resulted in the most recent round of Fed bond purchases. In other words, poor fiscal behavior brought monetary authorities to action once again.

We believe the Fed’s quantitative easing program (essentially printing money) has triggered these improving monthly jobs numbers. 

We are in the intermediate phase of GDP growth now. With sequestration spending cuts in place, we were looking to see 1.3% to 1.9% GDP growth for the U.S. economy. However, given the strength of these job numbers, our expectations are now up to 3.0% GDP growth for 2013. 

Strength in the stock market seems to be predicting this enhanced GDP outlook for 2013. A fairly solid, full-steam ahead economy appears to be here. 

One major risk is that the Fed takes its foot off the gas pedal earlier than expected. Therefore, we are watching the FOMC minutes closely. 


2. Mario Draghi and Europe Relief


Mario Draghi, the head of the European Central Bank (the ECB), recently kept his short-term policy rate fixed at 0.75%. 

In a press conference, Mario Draghi said, “You know the rules. The ball is in the government’s hands”. This is the language of Draghi and the market is buying it. The ECB has made it clear that they will take whatever steps necessary to stabilize the European economic situation.

Mario Draghi also spoke of rising cross-border flows of capital in Europe. This is a sign of the beginning of stabilization. In addition, policymakers have decreased their rhetoric associated with an economic “Domino Effect” caused by peripheral EU countries. As a result, a total collapse of Europe’s financial system is less of a concern. 

As the risk of a financial systemic shock in Europe declines, U.S. stock markets rise.

We think another round of policymaking in Europe is needed to help GDP growth. Policymakers at the EU and at the ECB have to go further  and if they do, it will push the S& P 500 higher.