On Friday, the S&P diverged +200 points from Friday a year ago. This is a significant positive for the economy, particularly for confidence.
I think energy stocks are underperforming because of the low nat gas prices, volatile oil market, fear of a collapse in Europe and China and slowdown in USA.
The market has been doing better because investors had become positioned defensively (in part in anticipation of a repeat of last year), because earnings have been coming in better than feared, because the employment report was better than feared, and because policy has continued on a stimulative path around the world.
Tomorrow is a particularly important divergence-test day because the S&P plunged -80 points Monday last year to just 1119, obviously way, way below Friday’s close of 1391.
The Global Growth Problem still look bad.
However, there were some encouraging US reports including unemployment claims, and both the US and Eurozone svc PMIs.
The biggest risks include a Eurozone collapse, a China hard landing, and that the US economy doesn’t improve in the Fall. Rising food and gasoline prices are becoming a risk.