Salient to Investors:

James Paulsen at Wells Capital Mgmt said concern that a surge in US bond yields will curb US growth is overblown because higher borrowing costs coupled with gains in confidence are a healthy sign for the economy. Paulsen said confidence is at the center of everything here and that since 1967, stocks have risen at a 12.8 percent annualized rate in months when bond yields and the Conference Board’s consumer confidence measure rise in tandem, and when borrowing costs increase and confidence drops, stocks have fallen at a 6.4 percent rate.

Adrian Miller at GMP Securities said the back-up in interest rates is not yet at a level that would creep into the psyche of the consumer as being a problem.

Drew Matus at UBS Securities said bond yields and equities are going up because the economy is doing well, not necessarily because of expectations of what the Fed may or may not do.

Freddie Mac report the national average 30-yr fixed mortgage rate was 4.40% last week.

Mark Luschini at Janney Montgomery Scott said a fundamental underpinning to this recovery has been the recovery in the housing market, so rising rates could choke rising household net worth and be counter productive for the Fed.

Joseph Carson at AllianceBernstein said since 1960, only 8 times has the ISM index seen comparable out-sized gains in production and orders that did not reflect rebounds from sharp declines a month earlier: 6 occurred in the very early stages of an economic recovery following a recession, and in all cases GDP picked up over the next year. Carson said the unexpectedly strong manufacturing survey, which usually signals the start of the cycle, is surprising given we are in the fifth year of this cycle. Carson said the recent jump in interest rates reflects reassessment of both economic performance and the Fed’s intentions.

The Citigroup Economic Surprise Index reached the highest level of the year.

Stephen Stanley at Pierpont Securities said we have not seen the disaster that some had feared and now the Fed has the opportunity to taper and the market is prepared for it.

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