The pushback has eased. We wouldn’t say that the crowd embraces our view just yet, but it’s clear that the folks arguing vehemently in the first few weeks of the year have quieted down in the past week or so. We are, after all, approaching the four-month anniversary of the rally and recovery in LEIs and this is the amount of time it took last year for investors to change their tunes on the outlook. Since the business remains largely driven by bottom-up investors, it takes a change in the language/attitudes of companies for the Street to truly embrace a view … maybe earnings season is beginning to do that.

We have many clients that are uncomfortable with the rise in oil prices taking place alongside the rally in equities. This is similar to what happened in 2009 and again in late 2010. To be sure, this is actually similar to what used to happen with the Fed Funds Rate. Indeed, for the past decade, stocks rose alongside official rates. Think of oil as a new form of tightening and there is nothing odd about its current behavior.

The good news on the oil front is that natural gas, and gasoline to a lesser extent, have not kept up with the rise in oil. This suggests to us that the economic tipping point for oil is likely far higher than last year’s $128/barrel. Moreover, the fact that the economy is now creating jobs also argues for a higher oil threshold than in the past. All that said, we track the relationship between oil closely as the charts above show. If we were to see a rise in oil and a loss of momentum in the market we would probably have to change our bullish tune. The good news for now is that the relationship seems very strong. Enjoy while it lasts.

The level of the WTLEI rose slightly in a relatively mild week for financial markets. Thus far for the month of January, the WTLEI has risen nearly 5.5%, the largest one-month rise since early 2010. All four of the reported leading indicators have ticked up and have brought some reassuring news regarding employment and manufacturing. This week will bring 7 more leading indicator reports for January, including the national ISM Manufacturing and Services reports. Stay tuned!

The three components of the WTLEI were mixed last week with the market and sentiment components slightly higher and the economic component slightly lower.  Most of the weakness in the economic component was driven by the policy outlook while strength in the other components was broad-based.