Baird: Investors growing more optimistic

The equity markets enjoyed modest gains last week resulting in the popular averages reaching the best levels in five years, and investors are growing more optimistic, according to Bruce Bittles, chief investment strategist for Milwaukee-based Robert W. Baird & Co. Inc.

In his “Market Notes” bulletin today, Bittles said the markets benefited from slightly better-than-expected fourth-quarter earnings reports and a surge of cash inflows into stock mutual funds and ETFs.

“The market found a new source of support the past two weeks as individual investors, who were net sellers of equity mutual funds in 2012, shifted gears by becoming large buyers. Last week, investors poured more than $18 billion into equity funds, the most since 2001. From a flow of funds perspective, this is a bullish development,” Bittles wrote. “In addition, the underlying technicals for the market have strengthened. The January rally has been broad based with the percentage of industry groups in uptrends rising to 79 percent last week from 72 percent and 63 pervcent two weeks ago. Divergences that were worrisome last year have disappeared as small-caps have outperformed large-caps in recent weeks with the Russell 2000 moving to a new all-time record high. The Dow Transports, which lagged the Dow Industrials last year, changed character by breaking out on the upside in January and surpassing their previous 2012 peak. As a result, the equity markets are expected to continue moving higher in the first quarter with the first area of resistance in the vicinity of 1480 to 1500.”

Meanwhile, in Washington, D.C., today, President Barack Obama held a press conference where he said he will not negotiate with Congress over raising the debt ceiling because raising the ceiling is needed to pay for past bills that Congress already approved, not future spending.

“This is pretty straight-forward. Either Congress pays its bills or it doesn’t,” Obama said.

House Speaker John Boehner (R-OH) issued the following statement in response to Obama’s comments today: “The American people do not support raising the debt ceiling without reducing government spending at the same time. The consequences of failing to increase the debt ceiling are real, but so too are the consequences of allowing our spending problem to go unresolved. Without meaningful action, the debt will continue to act as an anchor on our economy, costing American jobs and endangering our children’s future. The House will do its job and pass responsible legislation that controls spending, meets our nation’s obligations and keeps the government running, and we will insist that the Democratic majority in Washington do the same.”

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