As we approach the end of the beginning of the year, we know a couple of things:

• The S&P 500 is up just shy of 1.5 percent for the month, as I write this. If the market mantra “As goes January so goes the year” holds, we’re in for a pretty good year, at least for the stock market.
• President Trump actually meant most of his campaign promises and is proceeding to act on them as quickly as he can.

Last week showed more signs of a potential slowdown in the economy. Housing lagged, despite remaining at strong overall levels, and GDP growth and business investment slowed. But although the headline figures were disappointing, the details were better, suggesting that the current weakness is only temporary.

In the past couple of days, I’ve led a pretty optimistic quarterly call for investors, given a couple of pretty optimistic TV interviews, and written some fairly optimistic pieces here on the blog. Although I stand by all of my statements, it occurs to me that, for someone known as Eeyore, I’ve displayed an unusual amount of optimism lately.

It was less than two months ago—58 days to be exact—that I last wrote about stock market records. At that point, I noted that the market was at record highs, with the Dow Jones Industrial Average having crossed 19,000 and the S&P 500 above 2,200. And here we are again, with the Dow over 20,000 and the S&P over 2,300. Has anything changed?

The discussion about the economy lately has revolved around what the new administration might do in several key areas, including trade. In his inauguration speech, President Trump made it very clear that he intends to carry out the promises he campaigned on, and his recent decision to withdraw the U.S. from the Trans-Pacific Partnership (TPP) shows that he’s serious. Next up, NAFTA.

As the Trump administration gets under way, there are two major economic concerns to keep an eye on. The first is trade, which we will discuss tomorrow. The second doesn’t have anything to do with the President, at least directly. It is monetary policy—specifically, how and when the Federal Reserve will raise interest rates.

Last week’s news was mixed, both in the data reported and in the trends, suggesting the economy slowed into the end of last year. Nonetheless, while the pace has decelerated somewhat, improvement does continue and remains likely to do so into 2017.

In the early days post-inauguration, will financials keep doing well? Will we continue to see the kind of outperformance that we’ve witnessed recently?

Today, America carried out the peaceful transition of power that is at the heart of our democracy—except that we don’t actually have a democracy but a republic. In a democracy, the people make the decisions. In a republic, they elect representatives who make the decisions for them. This is a subtle but important difference, and one that represents a very deliberate decision by the founders, who distrusted popular sentiment.

In yesterday’s post, I discussed how corporate earnings will likely continue to improve, which should be good for the stock market on a fundamental basis. That’s not the whole story, however.

The key driver of the stock market, over the long term, is earnings. In the short term as well, earnings can be the primary driver of market performance. So, each quarter, it makes sense to review whether earnings are doing well or poorly, and why.

After a strong start, 2017 slowed down considerably in terms of economic data. Last week’s news, which centered on the consumer, largely disappointed. Although it’s too early to get very concerned, the numbers suggest that higher confidence levels aren’t yet translating into actual growth.

Just as I do with the economy, I review the market each month for warning signs of trouble in the near future.

The news this month continues to be good, with more positive data almost across the board. This is the second month of reversal against the downtrend that developed in 2016, which suggests a real change of course. Although we need more data to be fully confident, the consistency of the positive reversal across multiple data sets and the magnitude of the positive surprises are very encouraging.

Rereading some of my recent posts, it occurred to me that I’ve talked quite a bit about “confidence” (and the improvements thereof) without actually defining what I mean by it. Much of social science, and economics, is based on hand-waving, so when you have actual data, it makes sense to employ it.

Recently, several readers have written in questioning the current optimism about the economy. Is it sustainable, and is it realistic to expect faster growth?

2016 ended with a bang, as the Conference Board’s consumer confidence survey once again surprised to the upside. Coming in at 113.7 for December—up from 107.1 and beating expectations of 109—this is the highest level since 2001, suggesting that consumers are increasingly optimistic, despite weak personal income and expense growth.  

The big economic news of the week came in this morning: the jobs report.

Despite a jump in business and consumer confidence since the election, some of the facts on the ground have been weaker. To spur on faster economic growth, that confidence needs to result in action. Fortunately, this morning’s jobs report suggests that it is.

This week, someone asked me about the excess reserves held by the banking system and what the Federal Reserve is likely to do about it. As it turned out, what he really wanted to know was whether inflation is likely to take off and which signals might alert us if the economy and markets are about to roll over.

Now that the election is over and the Republican Congress has taken office, now that the stock market is close to all-time highs and confidence has ramped up to levels not seen since the dot-com boom, it’s time to think about what could go wrong.

Looking ahead into 2017, one big theme that will carry over from last year is the positive change in confidence. Consumer confidence has increased dramatically, especially since the election, and just spiked to a point last seen in 2001. Business confidence continues to rise and is now at a level not seen since 2007.

Last month was all about confidence: for the consumer, for business, and in the stock market.