The market is hitting up against some psychological levels: Dow 16,000, S&P 1,800 and Nasdaq 4,000. Do they really matter?

Maybe for a little while, but with China announcing more market-friendly reforms, Japan and Europe doing better, and capital rotations finding their way out of cash and into better-performing asset classes, the rising level of investor confidence regarding the 2014 outlook makes these levels temporary as I expect these indices to reach higher levels by year-end.

The market is definitely pricing in a good dose of this optimism, so let’s not get too excited about the improved investing atmosphere. More conviction by the Fed about faster growth ahead will only move up the tapering schedule as well, so that may not provide as much of a headwind as the next debt-ceiling debate begins to take the stage in January.

There is a general consensus that a more rational discussion about federal spending will take place, but it’s an election year and I wouldn’t count on it.

Bullish momentum is captivating the current rally, drawing money in from the sidelines, but the very short-term trend is once again overbought, meaning that a correction in the realm of 2%-3% would be a healthy development.

This might occur against a wave of economic reports due out this week, one or two of which could disappoint and spark a brief sell off. For equities, that would be refreshing.

As for high yield, a continuation out of deflationary income into inflationary income is our mantra — and so far it’s looking prophetic and timely.