Longest Winning Streak Since 2004

The last several days have been bullish ones for stocks.  What most may not realize, though, is just how unusually bullish they’ve been.  The S&P 500 Index (SPX) has advanced for eight straight days now.  That’s the longest winning streak since 2004, which has left the index just 4.1% shy of its all-time peak of 1,565 from October of 2007.  What’s even more amazing is that over the past four week, the S&P 500 has gained 7.1%, and over the past ten weeks [following the low from mid-November], the SPX has gained 10.5%.

Coincidentally, in the past couple of weeks, mutual fund investors have poured money into equity mutual funds after shunning them for most of the past couple of years. On the surface it all seems bullish.  Yet, there’s something naggingly bearish about the whole thing too.  When the market starts to do things it hasn’t done in years, it’s often a transition – a proverbial “last hurrah’ that kicks off something in the exact opposite direction.

For the time being, though, the trend is bullish, and we have to assume that will remain the case until we see a clear and decisive reversal.

Late Night Fiscal Deal is Done

As many expected, Congress put together a deal to avert the fiscal cliff at the eleventh hour.  The bill heads off the massive tax hikes that were scheduled to take effect and shuts down the automatic spending cuts that were negotiated back in 2011.  Removing this lingering uncertainty has cheered investors for the time being, and markets have moved up on the news.
While the Bush-era tax cuts were made permanent by the bill and the most dire fiscal cliff scenario was averted in the near term, the deal still contains tax hikes on just about everyone.  It raises income taxes for the “wealthy”, dividend taxes, death taxes and payroll taxes.  These are on top of new Obama-era tax hikes (for example, Obamacare tax on net investment income).
Unfortunately, this particular deal does not meaningfully address spending or job creation.  Further, as the bill was rushed through in the dark of the night, Congress managed to stuff pork-barrell programs into the package.
It remains to be seen what the impact of this bill will be on the economy.  Early estimates are that it will shift $600 billion out of the private economy to spend on government programs.  Also, Congress has once again kicked the issue of spending cuts and entitlement reform down the road setting up more of the same brinkmanship later this year.