Most major exchanges have moved higher in 2013, with many factors contributing to this strength.
Four key drivers are solid money flows into equities since January; strong U.S. housing and employment data; reasonable data out of China, including stable industrial production and rising exports; and continuing monetary policy support from most of the world’s central banks.
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An additional factor that isn’t being talked about much is the lack of news out of Washingoton D.C. When it comes to budgetary matters in the U.S., no news apparently means good news for stock markets. It’s become clear Republicans on Capitol Hill are divided. House Speaker John Boehner is in a very difficult position, as he’s been unable to influence some Republicans who are adamantly opposed to tax increases.
Read: U.S. stocks on fire, economy expanding
Because he does not have unanimous support from his own party, he has very little political capital to use in negotiations with the President. In fact, there has been some discussion that Boehner could lose his speaker job if a budgetary bill that included tax increases went to the floor. This inability to forcefully negotiate has forced Republicans to step back until they are in a better position to discuss budgetary terms that would be more favourable to the majority of the party.
You’re probably wondering if current market strength can last. Most investors would agree the rate of appreciation is unsustainable. And with the exception of central bank support, any of the factors supporting the bulls can easily reverse course, resulting in profit taking. So it’s possible markets will pull back in the near term, but for the time being they’re telling us they like what they see so far in 2013.
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