Testing Market Highs

Stock-MarketLast Friday marked the end of six consecutive weeks of  rallying with equities amid better than expected weekly economic data and a shortage of political volatility.

Equities have had an impressive run so far in 2013 with the Dow Jones and S&P 500 up nearly 7%, closing in with their all-time highs, while the Nasdaq has gained nearly 6%, reaching a level not seen since 2000.

Investors are left gauging if the time is ripe to add more money to equity markets near it multi-year highs or else wait for a solid pullback.

Although the coming week is light in terms of U.S. economic data, accompanied by corporate earnings season winding to a close, new economic data released towards the end of the week will provide a glimpse into the health of the U.S. economy as it comes to terms with rising gasoline prices and the fallout of the U.S. payroll tax holiday ending in 2012 with U.S. wage earners having 2% less in their monthly paychecks beginning on January 1st 2013.

For an American wage earner with a yearly salary of $50,000, the 2% payroll tax hike amounts to approximately $1,000 less in take home pay.

Economists are divided estimating how much the payroll tax hike will impact the U.S. economy and reduce spending levels.

On Wednesday the market will receive a snapshot of retail spending numbers for the month of January with lower estimates in the forecast.

Later in the week on Friday, manufacturing data will weigh on the market with new industrial production and Empire State data set to be released.

President Obama will give his State of the Union address on Tuesday.

Some of the topics that President Obama is expected to speak about in his address include creating more jobs and helping the U.S. economy to grow with a focus on avoiding the upcoming sequester cuts that Congress is faced with before the looming March 1st deadline which amounts to $85 billion in yearly automatic discretionary spending cuts in defense and non-defense programs until 2021, or $1.2 trillion over the entire span.

The White House has proposed a new plan to avoid the sequester cuts by replacing them with budget cuts in areas such as subsidies to farmers and oil companies while raising tax revenues through the elimination of tax deductions and loopholes, in addition to applying the “Buffett rule” on millionaires.

House Republicans are opposed to the concept of raising more revenues and want deeper budget cuts in domestic programs and reductions in the federal workforce along with cuts in contributions to federal pension plans.

During Sunday’s interview with ABC’s “This Week” Rep. Tom Cole (R-Okla.) emphasized that House Republicans will oppose against any revenue increases.

“The president accepted no spending cuts back in the fiscal cliff deal 45 days ago. So you get no spending cuts back then, then you’re going to get no revenue now” Cole said.

House Minority Leader Nancy Pelosi (D- California) was interviewed on Fox News Sunday and explained that sequestration is a bad idea and it should be out of the question.

“The fact is that we’ve had plenty of spending cuts- $1.6 trillion in the Budget Control Act. What we need is growth, we need growth with jobs” Pelosi said.

Pelosi later said if you have spending cuts where you are hindering growth, you are not going to reduce the deficit.

Sequestration will be an important topic on Capitol Hill this week since the Joint Chiefs of Staff are making rare joint appearances in House and Senate hearings Tuesday and Wednesday.




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