Summary: US equities are starting the year at new all-time highs. The rally is supported by healthy breadth and a relatively solid economic foundation. The biggest watchout is volatility, which has fallen to an extreme. A mean reversion in volatility is odds-on and that is normally unfavorable, short term, for equities.
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Today, SPX, DJIA, COMPQ and NDX have all made new all-time highs (ATH). All of the moving averages, from 5-d to 200-d, are rising for each of the respective indices. This is the definition of an uptrending equity market. Enlarge any chart by clicking on it.
The trend higher is supported by mostly good breadth. All of the cyclical (pro-growth) sectors are near one-year highs (green shading). The laggards are the defensive sectors.
Similarly, the Summation Index (NYSI) has regained the +500 level after having been negative two months ago. When equities are up trending (i.e., above their rising 200-d), this set up has led to longer term gains in equities (blue vertical lines). That doesn't preclude a near term drop, however, as seen in November 2014.
The trend higher in US equities is also supported by mostly positive macro data (a new post on this is here). Total employment, real disposable income per capita, real personal consumption and real retail sales are all at new highs. In the past year, hourly wages have increased at the fastest pace in nearly 8 years (second chart). Consumer loan delinquency rates are at a 30-year low (third chart). In short, the equity market is entering 2017 on a relatively solid economic foundation.
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