The S&P 500 index opened this morning down a bit, which I took as some reassurance of sanity in the markets. It just seems to me that the markets have been getting ahead of themselves lately. But by mid-morning, SPX had strengthened and closed the day slightly up ($1) at $1924. RUT traded up $6, closing at $1129. The VIX popped up a little on the opening of the market but then pulled back to close at 11.6%, up 0.2 percentage points. Trading volume dropped off markedly with 1.5 billion shares of the S&P 500 stocks trading. Trading on the NYSE declined 9% and trading on NASDAQ decreased 11%.

The small cap stocks continue to trail the blue chips, but appear to be making up some of that differential the past few days. The NASDAQ composite is somewhere in between. My concern about SPX continuing higher relates to the lagging small caps. Market extremes are usually met with extreme corrections. I still remember being at a dinner party during the holidays in December of 1999 and hearing people with absolutely no market experience talking about buying dot com stocks. That was a sign.

The ISM manufacturing index reported a value of 55.4 for May, slightly up from April's 54.9. Construction spending dropped off in April with a 0.2% increase, as compared to March's 0.6% gain. These are only two data points, but they are typical of what we have been seeing now for months and months - mediocre, flat to declining data. The bull market doesn't seem consistent with the hard economic numbers. The Fed's continuing stimulus, even at lower levels, is certainly part of the answer, but repeated all-time highs in the market worry me a bit.

We'll see what tomorrow brings...