Inflation And Interest Rates

The bears’ futile attempts to take stock prices
lower have been good sport to watch. The first level of support on the
S&P 500 is 1,280. The S&P 500 has closed above that level every
day since January 12. That’s 8 straight days.

Even last week, when it looked like a correction
was looming — after stocks sold-off on the good news from Apple
(Nasdaq:
AAPL)
and
IBM (NYSE:IBM) — the S&P 500 fell all the way to 1,271. But it didn’t
close there.

It’s a Correction!

I’ve been warning that a correction was coming for
stock prices for a few weeks now. And no, I’m not trying to point out
that I have any unique insight on this. It’s just that when the stock
market advances in a virtually straight line for 4 months, you start to
think investors and traders will take some profits at some point.

Corrections are inevitable and healthy for stock
prices, like a forest fire that clears out underbrush and old growth and
let’s new growth occur. OK, that may be a little dramatic, but you get
the point.

The New Technology Cycle

So far this earnings season, we are seeing a clear
separation between two of the stock markets leading sectors Starting with
Intel (Nasdaq:
INTC) and continuing with Apple (Nasdaq:AAPL) and IBM (NYSE:IBM), technology earnings were
fantastic in the fourth quarter.

But it should be clear that banks are still
grappling with the loss of mortgage business and the fallout from the
financial crisis. And quite simply, while the climate for banks has
certainly improved, as a group, they are not going to return to the
growth they enjoyed in the last decade anytime soon.

Does the Correction Begin this Week?

We are certainly getting an interesting start to
the week. Steve Jobs is taking a health-related leave of absence from
Apple (Nasdaq:
AAPL) and the shares are down around 5%. Apple stock traded down
8% yesterday in
Europe, so there may be some more downside. Apple sold off around15%
the last time Jobs took a leave of absence, so we may see Apple trade
down to $300 a share.

Of course, Jobs’ absence is unlikely to affect
Apple’s earnings, revenues and innovative products.

Goldman-Sachs Makes a $500 Million Bet

Investors who hate Goldman-Sachs (NYSE: GS) have one more reason to despise
the former investment banking giant.

The firm recently laid a $500 million bet on Facebook – the pre-IPO social
networking website with over 500 million users worldwide. And they’ve
valued it at $50 billion, meaning they have a one percent stake.

So why hate Goldman because of this deal?

Is There a Correction Coming?

2011 is starting off with a bang. Stocks are up big
today. And the catalysts are coming from every angle. China’s
manufacturing index is expanding, despite measures to slow inflation,
Bank of America (NYSE:
BAC) settled some of its mortgage put-back exposure, oil is higher
as growth expectations improve, price targets for Apple are higher, and
China has said it will continue to buy Spanish debt.

Each of these news items I’ve listed addresses an
important point of uncertainty. If
China can grow its economy at the
same time it attacks inflation, then the global economy continues to
enjoy Chinese demand for raw materials. That’s a clear benefit for
resource economies like
Australia
and Canada, and even benefits American
and German exports.

Retail Sales are Booming…

We are in the final stretch before Christmas. Yes,
the blatant commercialization of a great holiday gets old. But it never
manages to dampen my Christmas spirit.

Online sales are up 12% over last
year. And brick and mortar sales are coming in strong too. SpendingPulse
reports that clothing sales are up 9.8%, jewelry’s up 2.6% and furniture
sales are up 3.4% over last year.