What a Week: Bears Bloodied

Recent strength in big-caps has been aided by their relatively greater exposure to international economies and weakness in the dollar. Threats to both trends emerged this week: Japan reported a weaker-than-expected first-quarter GDP report, and China's central bank raised rates and widened the trading band in which its currency trades against the greenback.

The dollar was further bolstered this week by stronger-than-expected reports on housing starts, industrial production, jobless claims and the Philadelphia Fed manufacturing index. Yes, the government's index of leading economic indicators was weaker than expected, but the Economic Cycle Research Institute's weekly leading index -- the more accurate of the two - rose again for the week ended May 11, its growth rate rising to 6.1% from 5.2% the prior week, the ECRI said Friday.

The data, plus Ben Bernanke's comment that "we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system," significantly undermined odds of a near-term rate cut from the Fed.

The Fed may not ease anytime soon, but the market has fared pretty well with the central bank on hold for nearly a year.

Furthermore, the People's Bank of China's action to slow economic growth and restrain speculation -- even if done for political reasons ahead of the G8 meetings this weekend and next week's confab with Treasury Secretary Paulson -- only put in sharper focus the fact the Fed stands alone as the one major central bank not in overt tightening mode.

And, yet, international-based funds and ETFs continue to take in the lion's share of the flows, while many observers doubt the U.S. big-caps can continue to outperform. From a contrarian perspective, that's a recipe for more of the type of action seen again this week.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting