Where does the stock market go from here? For those of us who started the year skeptical, is it time to abandon our skepticism and jump in whole hog? For those of us who have caught all or much of the rally is it time to start taking profits or is the best course to stand pat?

I ended 2011 and started 2012 saying that I thought the first half of 2012 would be scarily volatile and investors should keep their powder dry for a second half rally after the People’s Bank cut interest rates. Wrong as of seven weeks into 2012.

About two weeks ago I opined that the rally now underway would run through February 29—when the European Central Bank offered European banks another 1 trillion euros in loans. Until then, I said it was safe to play the rally. After that, the odds of a correction would increase. Do I still think that?

Let me give you my take on where we are now and what moves are most likely to result in good returns with a reasonable amount of risk. Read more

In the January jobs number it’s the upside surprise that counts

Not just a good U.S. jobs number for January this morning but a surprisingly good jobs number. The U.S. economy added 243,000 jobs in January, up from a gain of 220,000 jobs in December. The private sector added 257,000 jobs in the month. Over the last three months the U.S. private sector has added 655,000 jobs.

Economists analyzing December’s data had pointed out that about 40,000 temporary workers hired by UPS and FedEx in December to delivery holiday packages would probably be let go in January. That would put a big drag on the January jobs number, economists reasonably concluded. Going into today’s release from the Bureau of Labor Statistics, economists surveyed by Briefing.com were expecting nonfarm payrolls to climb by 168,000.

The January jump in jobs looks to be connected to a recent drop in layoffs. Read more

At 2.8% fourth quarter 2011 GDP growth disappoints–and now we can see what the Fed fears

Is this what the Federal Reserve saw in the fourth quarter GDP numbers that made it pessimistic enough on Wednesday to say that exceptionally low interest rates will be with us until the end of 2014 instead of “just” the middle of 2013?

I’m not talking about today’s headline GDP number, although that was disappointing. The “advance estimate”  (the first estimate and subject to future revisions) showed real GDP climbed at an annual rate of 2.8% in the fourth quarter of 2011. That was below the consensus among economists surveyed by Briefing.com of 3.2%. But well above the 1.8% annual growth recorded in the third quarter of 2011. Fourth quarter growth was the strongest since the second quarter of 2010.

But 2.8% was still disappointing because in recent weeks economists and Wall Street had pushed their expectations above 3% to as high as 3.5% for the quarter.

The real problem with this number is where the growth came from and what that forecasts for the first quarter of 2012. Read more

Fed surprise as central bank says it will keep rates exceptionally low through end of 2014

Actually something of a surprise from the Federal Reserve’s Open Market Committee today.

The committee decided to keep its target rate for short-term interest rates at 0% to 0.25%.

No surprise there.

But then it said it anticipated keeping rates at that exceptionally low level through at least late 2014. Previously the Fed had said “though mid-2013.” Read more

Have we been here before?

It feels like those days in 2011 when the U.S. stock markets were the best performers in the world. But this isn’t just a replay of 2011. There are significant differences.

In 2011 U.S. stock markets beat all the other major markets in the world.

The overall absolute performance for 2011 wasn’t all that great: The Standard & Poor’s 500 Stock Index climbed just 1.2%. But the relative out performance was stunning: For 2011 emerging markets (as tracked by the iShares MSCI Emerging Markets Index (EEM)) was down 18.8% and the world’s other developed markets of Europe and Japan (as traced by the iShares MSCI EAFE Index (EFA)) was down 12.2%.

This January looks remarkably similar so far. Europe has continued to sink—iShares EAFE is down 0.77% for 2011 through January 6. Emerging markets are doing better with the iShares EEM up 0.75%. But the U.S. Standard and Poor’s 500 is up 1.76%.

The driver for the out performance of U.S. stocks in 2011 was been the ability of the U.S. economy to exceed expectations. While projections for growth in the EuroZone and in emerging economies have been falling, U.S. economic data, while not in absolute terms all that great, have exceeded expectations. Job growth of 200,000 in December may not be enough to cut unemployment significantly (especially when you factor in the 40,000 or so seasonal jobs delivering packages at FedEx and UPS that were added in December but will get subtracted in January), but it did beat consensus expectations of 150,000 net jobs for the month and the November figure of 120,000 jobs.

Economists have expressed worries that while U.S. economic growth will come in at 3.5% or so in the fourth quarter of 2011, it will drop back to 2% in the first quarter of 2012.

Investors, however, have been more than willing to overlook those reservations to ride the hot momentum hand in the first week of 2012. For example, home building stocks, one of the most battered groups in 2011, are among the best performers of 2012 so far. And the more battered a stock was in 2011, the bigger the gain in 2012. DR Horton (DHI), for example, was up 6.96% in 2011 and it’s up another 2.93% in 2012 through January 6. But PulteGroup (PHM), which was down 16.09% in 2011, is up 12.52% in the first days of 2012.

And it’s this speculative optimism that makes the first days of 2012 different from the relative out performance of 2011. Wall Street analysts have turned decidedly negative on earnings as we begin earnings season with fourth quarter forecasts now calling for just 6.9% year-to-year earnings growth and an even skimpier 3% forecast for the first quarter of 2012.

For the rally that has begun 2012 to have some legs, we’ll need to see some other sectors to add their bit to the housing-generated momentum. Technology is the best chance. Today momentum favorites F5 Networks (FFIV) and Broadcom (BRCM) are up 4.3% and 2.8%, respectively, as of 2:15 p.m. New York time. (F5 Networks is a member of my Jubak’s Picks 12-18 month portfolio http://jubakpicks.com/the-jubak-picks/ .)

If other momentum plays join in, this rally might run for a while, but rallies built on momentum make me nervous. They tend to end dramatically—if the momentum doesn’t get support from economic fundamentals.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. F5 Networks is a member of my Jubak’s Picks 12-18 month portfolio http://jubakpicks.com/the-jubak-picks/ . The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares in F5 Networks as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/