The abundance of economic indicators was overwhelming this week. The majority of indicators are showing that economic activity is improving, although perhaps not every sector has bottomed out yet. For instance, manufacturing may see better days ahead but construction expenditures may worsen. Nonfarm payrolls are declining less and the jobless rate even dipped in January, but we are likely to see a rising jobless rate in months ahead. Consumer confidence is coming back, although not to the exuberant levels of a year ago. Still, steady increases in consumer confidence could generate steady increases in retail sales over the coming months.

The FOMC voted against another cut in the federal funds rate at their most recent meeting this week, but policy makers are still worried about prospects for the economic recovery this year. Greenspan stated point blank that he believes market players are overly optimistic about the prospects for economic recovery, and therefore corporate profits, in the near term.

Bond investors are quite concerned that the Fed will soon start raising interest rates. That is a possibility if the economy and inflation start overheating, but given that many economists are predicting a moderate recovery, it isn't the best bet.

Equity investors are primarily focused on earnings and economic growth. If corporate profits begin rising, stock market investors won't be quite as disconcerted by a rate hike as bond investors.