The Dow finished last week above 14,000, which is something it hasn't done since October of 2007. Volume is returning and the Volatility Index (VIX), also a good measure of investor sentiment, is staying low. That said, things appear to be a bit overbought, and a little bit of bad news out of Europe was more than enough to cause Monday's selloff. We have been looking for a pullback and these dips will provide some buying opportunities in selected stocks.

We have had lots of interesting economic numbers since the last Commentary. The first look at fourth-quarter GDP showed contraction in the US's economy, but in this case, we know the number was skewed drastically by defense contractors' voluntary spending cuts in anticipation of sequestration spending cuts due to that didn't happen. So, in this case, a negative number is not as weak at it might appear.

The ISM Manufacturing Index rose for the second month in a row to a one-year high of 53.1, indicating that the US is starting to participate in improvements in global factory conditions. The production index increased as well, but is still at a level that indicates stagnation. Strong headline numbers and upward revisions in several areas will probably move that fourth-quarter GDP number to the plus side with next month's estimate.

On the other side, reported incomes jumped higher in December due almost entirely to the early dividend payments made by companies who tried to get ahead of a tax increase on dividends that ended up only affecting those with incomes over $400,000. In this case, the strong income number is not as strong as it might look.

Housing data is, once again, all over the map and hard to pin down. December numbers were generally lower, but industry insiders are still claiming increased strength in new home sales and construction. A pullback in this number in December is not necessarily a harbinger of doom as consumers put more emphasis on holiday spending and travel. The overarching principle in all this is not to make any big decisions based on one month's worth of data. The longer-term trend indicates very slow recovery.

The January jobs report showed 157,000 jobs created. The labor-force participation rate remained mostly unchanged, but the unemployment rate inched higher to 7.9% from 7.8%. We are still a long way from an unemployment rate of 6.5% or lower, at which point the Fed has indicated they will slow down the printing presses.

Huge upward revisions to November and December jobs numbers, including the annual baseline revision further encouraged economists and investors. Looking ahead, the average revision to a January jobs number is 115,000. We'll see what next month holds, but we still need month after month of jobs number above 200,000 to indicate some real growth in jobs.

Big gains in construction are probably due more to Sandy cleanup than they are a resurging housing market. The retail sector grew as well, indicating the payroll tax cut expiration has been less damaging than the decline in consumer confidence led the analysts to believe. A loss of 8,000 temporary jobs was about the only disappointment in the payroll figures.

The baseline employment revisions, positive ISM numbers and extraordinary circumstances that led to a negative GDP reading probably mean the chances of the US economy slipping back into a recession are decreasing.

So...why is this important? Consider this. The Dow hasn't been above 14,000 since late 2007, and even now is just about 20% higher than it was at the end of 1999. That's less than 1.5% growth per year on average. The S&P 500 is even less-exciting, barely 3% higher than it was then; and the Nasdaq would have to climb almost 60% to reclaim the high it reached in March of 2000. We really have survived over a decade of near-zero growth, even with low inflation.

We know the economy is cyclical, but the longer a recovery takes to get going, the stronger it will be. One doesn't have to look at long-term market charts to see that big booms follow both big drops and long periods of stagnation. An increasingly overdue turnaround in corporate growth and earnings increases could drive markets much higher. One of my biggest concerns is the unintended consequence of a workforce that has been on unemployment so long that many of them are no longer employable.

There are widespread reports of companies not being able to find people capable of doing the work they need done. Unemployment insurance is supposed to help people who are temporarily between jobs, but the sad reality is that it becomes counterproductive when they remain on it for 2 years or more and the technological advances in the workplace, even in the jobs they used to have, leave them in the dust and make them no longer employable.

Many developing and emerging economies are on the verge of breaking out while the US struggles and several Western European nations fear double-dip recessions. When the countries that are the main consumers are not as strong as the suppliers the system backs up. When the consumers do most of their consuming by increasing debt, the situation is unsustainable. Nobel Prize or not, I think Paul Krugman is nuts to say we can just keep printing money and never have to worry about inflation. If the rest of the world agrees that US dollars are worthless we will have inflation, and lots of other things to worry about.

I do not think the Dow's reclamation of the 14,000 level means we've missed the boat. All it means is that we're just about back to where we started from 13 years ago. Again, real recovery and growth could send markets much higher than this, but there is still widespread uncertainty over the near term, which means markets will remain volatile and reactive.

Several states are still struggling to achieve solvency. Californians voted to implement tax policies that have some big businesses and some of the ultra-wealthy considering relocation to more tax-friendly situations. I'm not sure what economics classes those voters took but common sense says a mass exodus of gainfully-employed, tax-paying, home-owning workers and spenders is about the last thing California needs. Remember, states can't just print money like the federal government; and raising taxes on wealthy individuals and corporations to increase revenues sounds great on TV commercials but there's a limit to its effectiveness because at some point those folks will decide to move to another state where they can pay lower taxes.

At the federal level, it's past time for both sides to quit blaming each other for this mess and get serious about fixing it. Congress controls the purse strings, not the president. Congress got us into this mess and only congress can get us out. Debt-ceiling issues were kicked down the road a couple of months, but not solved, and budget issues, taxes and spending cuts are all far from any kind of resolution that puts us on a path towards being out of debt.

All these factors serve to compress the spring that represents the pent-up demand of 13 years of almost no growth even further, and markets look ahead. Strong buying in the markets now indicates investors think we are 6-9 months from some stronger earnings and economic numbers.

I believe there is a Chinese proverb that says something like, "May you live in interesting times." All times are probably interesting to some people, and interesting implies some level of engagement or participation on your part, but if you're paying attention, these times certainly qualify as interesting. There's no shortage of things going on that influence the economy, the markets and your investments, and expecting investors and markets to behave or react rationally is a recipe for disaster.

Making money in markets is not as hard as keeping, or protecting it. For traders, when the trend is upward, small pullbacks are buying opportunities and multi-day rallies are chances to take some profits off the table. This is counter-intuitive and completely opposite of what the media would lead you to believe. Think about it. You never hear talking heads recommending you sell when the market is hitting all-time highs, and the last thing they're talking about on really bad days is buying, but that's what you need to do to make money.

For longer-term investors, when markets are streaky and reactive, less-volatile (low-beta) stocks and fixed-income investments won't always outperform an arbitrary index, but they will protect you from wild swings. We understand the difference between trading and investing and the importance of weighing as much data as we can get our hands on and recognizing what's important and likely to have an impact on our clients' portfolios.

Please call or email any time if you have questions, and look for the next Commentary in about a month.