Market Highs For the Dow While The U.S. Economy Modestly Grows

up mktThe Dow hit another all time record high yesterday closing at 14,296 amid better than expected ADP private payroll data and improving sentiment about the upcoming February jobs report that will be released on Friday.

Today investors are watching closely to see what position the European Central Bank (ECB) decides to take with interest rates.

The majority of economists are expecting ECB President Mario Draghi to keep interest rates unchanged at .075.

During today’s ECB meeting, Draghi is expected to talk about the economic outlook of the 17 block member euro area and address the stability of the euro currency in light of some fresh questions about Italy’s fiscal obligations to carry out their ECB endorsed austerity programs after recent political challenges have emerged in Italy due to their latest election results that saw the rise of some anti-austerity leaders.

As equity markets spike higher in the U.S. and the Dow makes new highs every day, investors continue to search for other catalysts to drive U.S. equities higher besides loose monetary policies by the Federal Reserve, low returns with U.S. Treasuries, and a brightening outlook for the U.S. housing market.

There are still plenty of retail investors who missed the early 2013 bull market rally and are waiting patiently on the sidelines for a market pullback in the 3-6 percent range before adding to their risk exposure with equities.

U.S. Economic Outlook for 2013

Modest growth is expected for the United States in 2013. The Congressional Budget Office (CBO) expects that economic activity in the U.S. will expand slowly this year, with real GDP growing by just 1.4 percent.

As the 85 billion sequester cuts take shape across the United States in the 2013 fiscal year ending Sept. 30th, the CBO estimates that the cuts will count towards about a 0.6 percentage point drag on economic growth in 2013.

That lower marginal growth rate from the sequester cuts combined with the 2 percent increase in the payroll tax for Americans could easily add some new challenges to the U.S. economy in 2013.

Although the retail and consumer spending numbers for January did not fall dramatically in January due to the 2 percent payroll tax hike which reduced the incomes for millions of Americans, lower spending levels could still register in the months ahead as more Americans have less money to save while their wages have declined.

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