Final Hour: Risk Bellwethers Chime Clearly
NEW YORK (TheStreet) -- There was a clear equation for Tuesday's gains: better economic data equals healthy stock gains and a new record for the S&P.
Bellwethers for solid risk appetite were ringing loudly: small caps gaining more than a percent, biotechs rebounding, financial stocks outperforming and safe-haven gold slumping as the worst-performing sector in the S&P.
It's a pattern investors are hoping will repeat through the warmer months, after the sluggish sideways slide since January. Now that we've digested those rich valuations and fast momentum rally, it's time to keep inching higher on better data and earnings.
Not that risks are absent: check out that near 14-month low in the VIX. While a low volatility reading is generally positive, slipping to such low levels smacks of complacency over geopolitical risks -- aka Ukraine, bets over ECB stimulus, Chinese or Japanese growth and the raft of European elections.ECB's Mario Draghi has again signaled readiness to act on low inflation and Chinese authorities have said they may adjust economic policy. While Draghi has previously talked up markets without acting, pulling that stunt twice is risky and investors are almost salivating at the thought of more stimulus in early June. Not that we expect any drastic upswing in the U.S. -- we've already had our stimulus run. Another reason for caution: S&P 500 call options, which enable investors to buy the index at a future time, are at their cheapest level in a year, according to Credit Suisse. That means investors see scant upside for the market. As long as data continues to improve, we'll move forward in fits and starts. Still, inching to new highs for the S&P feels somewhat anticlimactic.
-- By Jane Searle in New York
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