Morning MoneyBeat: Investors Give Economy a Pass, for Now

Morning MoneyBeat: Investors Give Economy a Pass, for Now 

By Steven Russolillo

MARKET SNAP: At 6:05 a.m. ET, S&P 500 futures up 0.1%. 10-Year Treasury yield flat at 2.73%. Nymex down 18 cents at $102.02. Gold 0.8% higher at $1333.70. In Europe, FTSE 100 down 0.4%, DAX down 0.2% and CAC 40 flat. In Asia, Nikkei 225 down 0.2% and Hang Seng down 0.8%.

WATCH FOR: February Dallas Fed Manufacturing Survey (10:00 a.m. Eastern Time). Frontier Communications, Hertz, Live Nation, Oneok, SolarCity, Tenet Healthcare and Vornado Realty are among companies scheduled to report quarterly results.

THE BREAKFAST BRIEFING

Despite the recent run of uninspiring economic data, stocks still lie within sight of record highs.

Just a few weeks ago, investors were nervous as markets were tumbling. Now, many have assumed the worst is over and brighter times are ahead. The S&P 500 moved within 0.1% from hitting a new record on Friday before slipping back.

The stock index is down just 0.6% for the year.

The markets have largely given the economy a pass even as the winter’s brutal weather conditions have taken a toll on recent data. The Citigroup U.S. Economic Surprise Index–which reflects whether economic reports are coming in better or worse than economists’ expectations–fell to negative 7.7 on Friday, the lowest level since July 23.

Economists expect more weak data ahead, with readings on manufacturing, housing and durable goods due this week.

“The degree to which recent weakening has been weather-related will be a key driver of financial markets over the next few months,” says Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

He expects a “clear acceleration” in the economy once the weather turns more favorable. “Unfortunately, that acceleration may not be evident until the March numbers are reported,” he says, which won’t come until April.

That leaves investors in a difficult spot. The recent string of downbeat data is unlikely to prompt the Federal Reserve to change course on its stimulus plans. The central bank is expected to keep trimming purchases at a measured pace throughout the year.

But the longer the data disappoint, the more likely a situation ensues in whichinvestors’ belief that the economy will do better this year than last starts to buckle.

That may not prevent stocks from hitting new highs over the short term. But it could hinder their ability to hold those levels on a sustainable basis.

Morning MoneyBeat Daily Factoid: On this day in 1868, President Andrew Johnson became the first U.S. president to be impeached by the House of Representatives. He was later acquitted by the Senate. Until Bill Clinton’s impeachment in 1998, Johnson had been the only U.S. president to be impeached.