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Global Macro: Data Boost Equities

NEW YORK (TheStreet) -- U.S. equity markets have continued to trend higher as improved economic data have justified tighter monetary policy.

Some believed that when the Federal Reserve began to reduce its bond-buying program, stocks' rally would end. That hasn't been the case as strong economic numbers have kept investor sentiment elevated since the Fed's policy decision.

Last week it was announced that U.S. orders for durable goods rose 3.5% in November, the fastest pace in 10 months. That shows that businesses are still willing to spend, even as interest rates rise. If companies are willing to invest capital for growth, they believe they will reap real returns.

Higher business spending is also a positive sign for manufacturing. The increased projected output will create more demand for industrial metals, which is reflected in the prices of copper and aluminum. Both have been on a gradual trend higher over the past few months.

New home sales also boosted markets. New home sales provide a gauge of strength for the traditional home buyer, as opposed to existing home sales, which are often clouded by properties purchased as investments.

Revised October new home sales reached their fastest growth rate in five years. That fueled a spike higher in homebuilders' stocks, and showed that homes are still in demand, even in the face of higher mortgage rates.

Higher stock prices have also affected market volatility. The VIX, a measure of equity market volatility, fell below 13 last week. Over the past year, readings below 13 have signaled extreme market confidence.

As equity markets continue to be strong, shorting indices becomes a difficult endeavor. If tapering couldn't derail the rally and economic data continue to improve, then investing on the side of the bulls may be the most profitable decision in the months to come.

SPY Chart SPY data by YCharts

At the time of publication, the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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