The ability of the cyclicals to sustain their rally past this week remains in question however. With hopes for a global economic recovery dancing in the heads of many a pundit, the beaten down large cap cyclicals beckoned. As the market enters a seasonally slow period for retirement fund inflows, fundamentals will have to take up the slack in order to drive the cyclicals higher. The fundamentals of recovery continue to be long on hope and short on reality. In Japan, near zero interest rates and massive public works spending has stopped the slide, but there is no sign of recovery in sight.
Capital spending continues to decline, and consumer spending is being dragged down with it.
Europe, too, is long on hope but short on reality. Recent interest rate cuts will do little to solve Germany's high cost basis. Any positive effects of recent rate cuts could also be negated if the war in Kosovo drags on and European NATO member nations are forced to add to their already high debt burdens to finance a protracted, intensified war. In the U.S., the economy remains strong, but it is a consumer led economy. The manufacturing economy remains weak and is showing few signs of improvement.