The Dow Index has Come Near the 16,000 Milestone Level

Stocks remain within striking distance of key milestone levels, with the S&P 500 just 4 points away from 1800 and the Dow Jones Industrial average less than 50 points away from 16000. Given the market’s recent momentum, it’s hard to envision any scenario where wouldn’t see stocks reaching these record levels in the coming days, perhaps as soon as today.

The market’s phenomenal recent run may have had multiple drivers, but the Fed’s extraordinarily supportive role has to take the pride of place on that list of factors. Even market bulls have to acknowledge that the coming change in the Fed’s policy stance will likely not be smooth for the stock market. The market was understandably happy with Janet Yellen’s testimony last week, as she essentially came across as continuation of the Bernanke regime. This does not mean, however, that the December Taper was off the table. I continue to believe that if economic data in the coming days maintains the recent positive momentum, then we could very well see the Taper announcement in Bernanke’s last meeting as Fed Chairman in December. The key economic report on that front will be the next government jobsreport.

Before we get the November non-farm payroll report early next month, we will get a sense of how the retail scene is unfolding this holiday season. Early indicators are not very inspiring, but it will be premature to read too much into them. The soft University of Michigan Consumer Sentiment survey for November adds to the uncertain backdrop created by Wal-Mart’s (WMT) underwhelming outlook and the overly promotional aspect of this year’s season. But on the flip side, household finances are in their best shape since the downturn with lower overall debt levels and modestly higher pay. The steadily improving labor market, wealth effect from the stock market’s impressive gains, and favorable housing markets momentum all raise hopes that holiday spending could surprise to the upside.

The Target (TGT) report this Thursday will give us a better sense of whether Wal-Mart’s woes are company specific and a function of competitive pressures or reflective of problems at the low end of the consumer economy. It was surprising that the retailing giant didn’t acknowledge the beneficial effects of the recent drop in gasoline prices, but we will find out more in the coming days.