Kee Points with Jim Kee, Ph.D.

Stocks in general had a stellar January as the S&P 500 gained 4.4%, the strongest January since 1997. A lot of this has been due to (1) improving data in the U.S., (2) lower perceived systemic financial risk from Europe due to the ECB's provision of unlimited three-year funding for banks (as well as better than expected bond auction in Italy and Spain), and (3) growing confidence in continued (3.5%ish) global growth and a mild (versus deep) Europe recession (Deutsche Bank). Some of this confidence in global expansion stems from stimulative monetary and fiscal efforts ("policy easing") in emerging markets.

In Europe, 25 of 27 European Union members signed a fiscal pact that is designed to reduce budget deficits and restore investor confidence there (Britain and the Czech Republic declined). It is a positive step, but it is only a step. For example, French President Nicolas Sarkozy wants to hold off on French ratification of the treaty until after the Spring elections, and his opponent (Francois Hollande) has vowed to renegotiate it if he wins (Wells Fargo Securities). Greece continues to drag its feet on reforms, although today the government agreed to lay off 15,000 public-sector workers by the end of 2012, a concession made to help secure loan funds. Portugal appears to be next on-deck, particularly since Standard & Poor's downgraded it to junk status on January 13th. But Portugal's overall debt load is smaller than Greece's, and it has a lower (but still high) debt-to-GDP ratio of 110% versus 160% for Greece. Other concerns include an increasing number of downward earnings revisions for U.S. companies. It is important to keep in mind, however, that profit margins haven't yet peaked in the U.S., and historically the stock market doesn't peak until about 5 quarters after earnings peak, on average (J.P. Morgan).

In the U.S., last week's positive ISM manufacturing and non-manufacturing reports pointed to expansion. That's consistent with Friday's payroll report (the Bureau of Labor Statistic's monthly Employment Situation Report), which indicated that non-farm employment rose by 243,000 in January – better than expectations. The unemployment rate fell to 8.3% (from 8.5%).  There are some seasonal factors at play here, like unusually warm weather, which reduces construction industry job loss from what normally occurs. But overall, the BLS (Bureau of Labor Statistics) reported that "job growth was widespread in the private sector, with large employment gains in professional and business services, leisure and hospitality, and manufacturing."