Mark Luschini, Janney, Montgomery Scott

The news last week did nothing to dissuade those of us who have moved more optimistic about the economy. Several readings on the Manufacturing sector, the Chicago Purchasing Managers Index and the Institute for Supply Management (ISM) survey, came in at levels of business activity that were the best since 1988 for the PMI data and 2004 for the ISM report. In addition, car sales increased, banks are reporting increased loan demand, and a survey of the Services sector (which represents the majority of the U.S. economy) indicated continued growth. It was plenty to push equity prices higher and bond prices lower. The Dow Jones Industrial Average rose for the ninth week out of the last 10, gaining 268 points, or 2.3% along the way. Surging corporate profits and announcements of dividend hikes and M&A activity continue to bode well for the stock market’s fundamentals. Bonds, however, moved lower as much of the week’s news suggests the economy is getting better. That, in turn, could mean the Federal Reserve’s asset purchase program may be discontinued after its June term, inflation might begin to build, and along with it, higher interest rates could be in the offing. The Barclay’s Aggregate Bond index lost more than 1% for the week, equivalent to an approximate decline of 120 points on the DJIA.

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