Finally! Economic Recovery Is Starting to Pick Up Steam

NYSE traders happy
Getty Images

Stock-market bulls are finally getting some data to back up their bets that the U.S. economic recovery is picking up steam.

The Dow busted through its 2007 high of 14,164.53 earlier this week and never looked back, egged on by encouraging economic data.

The Federal Reserve's "beige book" report, named for the color of its cover, showed most of the 12 Fed districts with either "modest" or "moderate" growth at the start of the year and the ADP employment report showed 198,000 jobs added in February. That bodes well heading into Friday's jobs report from the government, which is expected to show 160,000 job gains, according to Thomson Reuters.

(Read More: Job Gains Help Fuel the Stock-Market Bulls)

"I think some of the growth surprises you're seeing (in the U.S.) are ... underlying improvement in the domestic economy," Nick Nelson, global head of equity strategy at UBS, told CNBC Europe. He expects U.S. consumer confidence to improve over the course of the year as the housing-market recovery creates a wealth effect.

IHS chief economist Nariman Behravesh told CNBC that economic growth will likely start out at about 2 percent this year but the pace will pick up — even with the sequester. "By the end of the year, we have a good shot at 3 percent," he said, adding he wouldn't be surprised if growth improved to 3.5 percent.

This could also revive corporate-revenue growth.

"The market is right now not pricing in a whole lot of expectations for economic growth," Tim Courtney, Exencial Wealth Advisors' chief investment officer, said. "So as long as these companies can hit their profits with not a whole lot of [revenue] growth, but some, then broad market investments should do well."

On tap for Thursday are reports on weekly jobless claims, the January trade deficit, January consumer credit and revised data on fourth-quarter productivity and unit labor costs.

(Read More: Cramer: I Like This 'End of Bear Market' Thesis)

As the U.S. economic recovery gains traction, the flip side is that Europe looks like it's slipping deeper into recession. This divergence may give the Bank of England and European Central Bank policy announcements Wednesday more significance.

Weak U.K. growth could prompt the Bank of England to embark on additional quantitative easing to shore up the economy.

Already, the British pound has been sinking against the dollar as markets anticipate more easing. "If we get (quantitative easing) in the U.K. tomorrow and strong numbers in payrolls, sterling will get smoked in that environment," David Bloom, global head of foreign exchange strategy at HSBC, told CNBC Wednesday.

(Read More: Sterling May Get 'Smoked,' HSBC Warns)

Meanwhile, the ECB is widely expected to leave rates unchanged but there is a slight chance that policymakers cut rates in a bid to boost growth.

"There could always be potential for surprise tomorrow," said Boris Schlossberg of BK Asset Management. "The market is starting to pressure the ECB into possibly cutting rates further."

ECB chief Mario Draghi has been known to surprise the market, he added, suggesting there's the slight possibility the ECB cuts rates to 0.50 percent from an already record low 0.75 percent.

Schlossberg also pointed out that with U.S. economic growth looking much better than European growth, the U.S. dollar is starting to trade as a growth currency instead of safe-harbor currency.

Global investors also will be watching Japan where the Bank of Japan's two-day meeting finishes up. Although no move is expected, political pressure for the central bank to reflate the stagnant Japanese economy is building. Incoming Bank of Japan Governor Haruhiko Kuroda is expected to make a big move at the BoJ's April 3-4 meeting.

With central banks all over the world printing money, stocks can continue to rise, but it may end badly unless fundamentals pick up meaningfully.

"I think stocks could very well rally through the rest of this year, even into 2014 based on this wave of money, but at some point it will pop and collapse, and that's what investors need to bear in mind," Jim Rickards of Tangent Capital, warned on CNBC Asia.