Ending the same way now for the ninth time out of the past 10 sessions, the Dow did not even bother to start out lower and then improve as the day wore on, as it just opened higher and banged around within its higher range from being ahead by 45 to as much as 82 before finally closing with a 67 point advance. In a sense, the Dow’s gain were somewhat of a distortion because a strong advance in the shares of IBM basically accounted for the entire gain, since the Dow is a price-weighted index, this highest price stock in the group has an outsize influence when it makes a large move in either direction. On the other hand, earnings-related gains in components MCD and UTX also contributed to the advance.
This concentration in IBM for the Dow advance was proven by the fact that breadth numbers overall were slightly negative at a 14/15 ratio but the S&P did advance by 2 points and the Nasdaq actually had the nerve to gain 10 points due to very strong earnings-related gains from GOOG and ISRG, and even the stock named after a fruit had the nerve to rally into its earnings last night, which turned out to be a disaster for today’s stock price and more on that later.
The Dow Transports once again reached a new all-time high after actually declining into negative territory during the day, helped by good earnings results from CSX, LCC and NSC. And those mid and small-cap indexes ended lower after all of them made new intraday all-time highs.
Perhaps the best development of the day was that crude oil, which had been climbing higher up to dangerous levels close to $100 at over $96, decided to go lower, at least for one day, as it fell by the largest amount in a month, $1.50, down to just above $95 as capacity on a pipeline that runs from the delivery point in Cushing, Oklahoma down to the Gulf of Mexico, was lowered, whatever that is supposed to mean, and on the next day that crude oil goes back up, this will all be forgotten.
The market is so determined to rise that it ignored what would have been negative news during normal times when the I.M.F. lowered its growth forecast worldwide to 3.5% from 3.6% and perhaps this was not enough of a decline to make any difference in the first place, and they also added that the E.U. will see its second straight year of contraction, also not a surprise forecast either.
With earnings season for the fourth-quarter in full swing, of the first 99 S&P companies to have reported, the consensus was for 2.8% earnings growth, which while down from as high as 10% last October, is actually above the pessimistic 1.9% forecast at the start of the reporting season. Those that have beaten the consensus represent 68% versus the 65% that beat the estimates for the past four quarters. So these numbers are considered bullish as the market fishes for justifications for what has become a historic start to a new year, a 3.6% gain for the S&P so far in January, which is its best out of the gate performance since the very bullish year of 1997.
And believe it or not, the very low level of the VIX is still providing support for stocks as it actually had the nerve to end nominally higher despite good gains in all of the indexes, as for instance despite that Dow advance of 67 points, it finished with a nominal gain of .30 to 12.46 after having gotten as low as 12.30 during the day. Last Friday, it made an intraday low of 12.29 and today it made an intraday low of 12.40 and is actually rising, but more on this later. So now perhaps we have a new support level for the VIX, but it is still favorable for stocks to keep advancing, hard as it may seem that these types of uninterrupted advances can continue.
And sure enough, some dramatic earnings news last night in both directions has the market moving in both positive and negative manners as well. The Dow started slightly higher but in the rush for investors to get into the market at any cost, it pushed to a gain of as much as 100 points at its best level of the day at 11:30am, helped by advances in recently scorned BA and ongoing better prices in energy components and ahead of tonight’s reports from MSFT and T.
The Nasdaq, on the other hand, obviously had issues with the shares of the stock named after a fruit, which got blasted sharply lower after its report last night and as a result the index started out with a 30 point loss but as the Dow moved to its best level of the session, it actually had the nerve to get back to unchanged, as the AAPL disaster was counteracted to some extent by an astounding gain in NFLX, in addition to advances in other components such as SWFT, TZOO, OSTK, FFIV and even SNDK after their better reports.
But the VIX was having no part of it once again, as it declined to as low as 12.40 as mentioned above, and even as the major averages were rushing to their best intraday levels, it was ahead by .16 at the top of the market and as things have deteriorated from those highs, it has really gotten an upside kick of sorts, and is currently ahead by .44 to 12.90 even as the Dow is still ahead by 40 points as this is being written, but the S&P has declined to just about unchanged and the Nasdaq has fallen back to a 20 points loss courtesy of an additional sharp move down in the shares of AAPL.
And these results point out the uselessness of cheerleading analysts who had the nerve to hype their price targets for AAPL up as high as an absurd 1,111 and even the one analyst who is very ubiquitous in his television touting to as much as 900 in the glory days of a few months ago, is now down to 767. What has happened is that every analyst has now lowered their price targets AFTER the earnings report, so in a sense what function are they serving, as they tell you to sell when the stock is lower by more than 60 points and why weren’t they so smart yesterday as the stock rallied into its numbers? And believe it or not, the one stock that is exploding to the upside with a 40% gain has price targets by many analysts at between only one-half to one-third of what the stock is trading at, and this is an example of misfiring just as badly in the other direction from what the case has been for AAPL.
At its high, the S&P stalled out at the nice round number of 1500 and had advanced for seven straight days, which would have been its longest such streak since October 2006, and the Dow has now been higher for 10 out of the past 11 sessions, also an astounding performance. Economic reports both here and abroad are helping as well, with China’s manufacturing expanding at its best rate in two years and German manufacturing data came in better than expected as well. Economic reports here are also better as weekly jobless claims declined down to 330,000 which was the lowest since January 2008 and the December L.E.I. gained by the most in three months as lower jobless claims and higher stock prices were the two components that pushed the reading to better than expected levels.
The Dow Transport Average is exploding to another new all-time high as well with gains in LUV and UAL after their reports providing the upside motivation here and after a day off yesterday most of the small and mid-cap indexes are at all-time best levels ounce again.
Earnings reports have beaten the estimates for 68% of the 133 S&P companies to have reported with the consensus moving up to profit growth of 3% at the present time.
Outside markets such as Treasuries are doing nothing, but crude oil could not stand the one day off and is back up again to over $96 a barrel and gold is selling off despite a higher Euro on the better news from Germany, as the common currency is back up to 1.3370, approaching resistance at 1.3400.
This week should continue to be a real barnburner for earnings, with the following lineup in a holiday-shortened week: tonight – Dow components MSFT and T, plus AMGN, JBHT, JNPR, KLAC, QLGC, BVSN, CELG, CRUS and FLEX; Friday – Dow component PG plus COV, HAL, HON, KMB and WY. And the week after that gets even better, so this will really determine where the fourth-quarter earnings period has gone.
Economic reports finish with Friday – December new home sales.
First quarter earnings rose by 6.2%, increased by 5% for the second-quarter, and were flat for the third-quarter. 3% gains for the fourth-quarter are projected at the present time, in addition to a gain of 3.5% for the first-quarter of 2013.
The S&P trades at 14.6 times the projected 2012 earnings of $102, according to the analysts who follow these companies. Earnings were $85 in 2010 and were $92 in 2011. The estimate for 2013 is $108, a gain of 6%. The average P/E multiple for the S&P going back to 1954 has been 16.4.
After four consecutive quarters of negative G.D.P. growth, we now have 12 consecutive quarters of positive growth, starting with the third-quarter of 2009, every quarter in 2010 and every quarter in 2011, and every quarter this year as well. For 2011, G.D.P. rose at 1.7% and it is projected to grow by around 2.2% in 2012, and by 2% next year, according to various surveys.
Donald M. Selkin
