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The Need for Caution; GDP and Jobless Claims: Best of Kass

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among the posts this past week were entries about the need for greater-than-usual caution and GDP and jobless data.

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No Memory Day to Day

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Originally published on Friday, Jan. 31 at 6:59 a.m. EDT.

The thrust of my diary's opening missive on Thursday was that the month of January represented (1) a challenge to many of the consensus expectations for 2014; (2) a scenario in which the investing and economic backdrops have changed (and not for the better); and (3) the notion that risk (and contagion) happen fast.

The major market indices will almost assuredly close the month in negative territory. The January barometer states that "as January goes, so goes the full year." While I am not much of a believer in that technical voodoo, I would note that the theory has been correct for 73% of the last 85 years.

To this observer, January could represent an important inflection point and watershed for the markets.The month's performance is consistent with my expectation that the S&P 500 will suffer a 5%-15% drop in 2014. its first drop in five years.

Overnight the markets failed to carry over with the prior day's strength, which has been a typical occurrence throughout the last four weeks in a market that I have described as having no memory from day to day.

Thursday's price action was strange. As it is said, "play on, player." The new economy stocks ripped the shorts' heads off during the regular session, led by Google (GOOG - Get Report) and Amazon (AMZN - Get Report) in anticipation of earnings. Amazon disappointed and is trading lower by about $20 a share, or 6%, while Google's shares have hit an all-time high, rising by $40 a share, or 3%, in extended-hours trading. At the same time, the financial sector lagged, representing, to me, a worrisome sign that Thursday's strength could be short-lived.

Equally disconcerting, as risk assets climbed on Thursday, Treasuries (despite the announcement of a continued taper earlier in the week) also rose across the curve. Yields have followed through to the downside this morning and the yield on the bellwether 10-year has breached the 2.70% level.

The DAX is leading the European indices and is down by nearly 1.50%, putting the year-to-date drop to more than 3%, and S&P futures are 14 handles lower.

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