This is starting to get too easy, in other words the recent tendency day after day that the market has consistently ended higher at the close than where it was earlier in the session and Friday was no exception to this tendency. Similar to Thursday, the Dow made its lowest positive prices in the morning, and this time it was ahead by only 12 at 10:30am from which level it decided to grind higher as the day moved ahead and was up by around 65 points for a good part of the afternoon. It then made a late dip to be ahead by 35 with about five minutes to go, at which point some astounding last-minute maneuverings took place which drove it another 35 points higher by the close to end with a 70 point advance.
And it was astounding in the sense that the last couple of minutes had the feel of an options expiration in the sense that there were additional moves in stocks, mainly to the upside, that did not seem motivated by anything other than market on close types of orders with one glaring exception. And that exception was in the shares of the stock named after a fruit that got knocked down from 442 just before the close to as low as 435, according to Reuters, but not other financial reporting services. It did officially end at 439.88 and then one has to ask the question of – who had the privilege of selling out at 435, which was also the low today as well, which could possibly mean that by some miracle that this stock has finally found some near-term support after a decline of only 270 points from its all-time high last September. In the process, it had the ignominious honor of losing its place as the most valued company to XOM, which continued a week of astounding, never-interrupted advances in energy stocks as well as industrial type issues as well, some of which made new all-time highs in the process.
The S&P also made a very late advance and closed over the 1500 level, which it was under before that strange upward burst took place. This was its highest close since December 2007 and the Dow did even better with its best showing since October 2007. The Nasdaq joined in the upside party as well despite the shares of AAPL getting sold off as already mentioned. The index ended with a 19 point gain due to advances in such issues as AMZN which closed at a record high and an ongoing astounding advance in the shares of NFLX, up by only 70% since their earnings report earlier in the week, as well as another strong move by PCLN and earnings related advances in SBUX and even MSFT got into the act with a nominal advance after its report as well.
Breadth numbers were positive at an 18/12 ratio and for the third day in a row the VIX rose along with the market, and this has to be considered longer-term friendly because it moves the price further away from its new support level at 12.30, as it got up to 12.89, a nominal gain of .20 but somewhat astounding on a day when all of the major averages were higher.
And how about the Treasury market, which has now seen bond yields rise up to 1.95% for the 10-year, and the reasoning was that European banks are going to make faster re-payments of their three-year loans back to the E.C.B., which means that the necessity of “safe-haven” buying of Treasuries at what had been record-low yields is not as much of a necessity as it had formerly been. At the same time the Euro also went higher, up to 1.3460, an 11-month high, on this same dynamic, as well as better news from Germany on the third straight month of gains in their business climate index to the highest level since last June. On the other hand, the Japanese yen got sold off to its lowest level since June 2010 against the U.S. dollar, its 11th straight week of lower values, the longest such losing streak ever. Motivated upward by higher stocks and a stronger Euro, crude oil had no problem with continuing to advance as it reached $96 a barrel again while gold on the other hand closed at a two-week low on the lessened need for a so-called safe haven, which gold has provided to investors for the past 12 years. And more on both of these items in today’s Bi-Weekly Commodity report.
The Dow was helped by earnings-related gains in components PG and MSFT along with energy stocks, as mentioned above. The S&P rose for the eighth straight session, the longest winning streak since 2004 and is now ahead by 5.4% in 2013 as the major averages have now put in their fourth straight week of advances. If these gains hold, it would be the best start to a year for the S&P since 1987. The Dow made its best start to a year since 1989.
Of the 147 S&P companies that have been reported so far for the fourth-quarter, 68% of them have beaten the consensus and earnings are now projected to be ahead by 3%, better than the 1.9% projection at the start of the reporting period but well below the 10% that the experts thought would be forthcoming last October. The percentage of companies that has beaten consensus has been 65% over the past four quarters and 62% since 1994.
Are we going to see the same dynamic once again today, as the Dow opened higher by around 20 points due to strong earnings from CAT and then proceeded to quickly decline to its low so far for the session of a 33 point loss at 10:15am from which level it is pushing a bit off of those lows once again and is down by 12 points as this is being written. The S&P is nominally lower as well and the hero of the day so far, would you believe it, is the Nasdaq with a 9 point advance at the present time due to, would you believe it, a good gain in the shares of AAPL after it once again got down to that 435 level on the opening, which is where there now appears to be a double-bottom near-term support level after another analyst jumped in on the negative side after having been at much higher levels when the stock was flying upward for most of the year, and if the handling of the price targets and recommendations for this one isn’t one of the worst I have ever seen (i.e. cheerleading to quadruple-digit price targets when the stock was moving higher and then cutting back on these prices after the stock has undergone its recent decline of 270 points, but never mind). If it holds at current gains and XOM holds at current losses, AAPL would reclaim its position as the most valuable company once again after relinquishing that title for one day so far last Friday.
Economic reports were mixed today, with December pending home sales coming in well below consensus with a loss of 4.3% while December durable goods orders rose by much more than expected with a 4.6% gain, which is probably one of the reasons why the industrial type stocks have done very well lately. Despite the overall nominally mixed showing of the major averages so far, breadth numbers are to the downside at a negative 12/16 ratio and for the fourth day in row the VIX is higher, today by .70 up to 13.59 which now means that the 12.30 level is probably going to be difficult to crack on the downside.
This means that the VIX is now at 13.59 while at the same time the S&P itself has gone higher from 1492 last Tuesday to its current 1501 at the same time that the VIX was at its lowest close at 12.43. So we have now seen another bizarre occurrence going on here, as both the S&P and VIX have both risen for the past four days net net, so someone is going to be wrong here. This means that the market is about to put in a near-term top or that the higher level of the VIX is going to allow for further upside to new highs for the move, which really does not seem as if it could happen after the almost uninterrupted advances so far this year and the new-found bullishness of individual investors with their sudden re-discovery of stocks after shunning them while the market more than doubled from its March 2009 lows.
And as day follows night, the Dow Jones Transports and all of the small and mid-cap indexes all reached intraday all-time highs this morning before pulling back to where they might actually end the streak, although there is still time to go.
This week sees the continuing earnings parade, with – tonight – YHOO; Tuesday: Dow component PFE plus EMC, HOG, NUE, BRCM, LLY and RYL; Wednesday: Dow component BA, plus FB, QCOM, TLAB and WEC; Thursday: AMZN, AET, K and VIAB; Friday: Dow components CVX, MRK and XOM, plus LVS, MAT and SFLY.
This week will also see the January jobs report on Friday, adding to the drama of the earnings season which will be peaking by the end of next week. We also get the results of the latest F.O.M.C. meeting on Wednesday at 2:15pm and when is the last time that the market rallied on one of those? In between these two big ones we get: tomorrow – November CaseShiller Home Price Index, January Consumer Confidence; Wednesday – first estimate of fourth-quarter G.D.P.; Thursday – weekly jobless claims, December personal income and spending, January NAPM Milwaukee Purchasing Managers Index, January Chicago PMI; Friday, in addition to the jobs report (current estimate is 161,000), we get final January U. of Michigan Consumer Sentiment Survey, December construction spending, January vehicle sales and January ISM Manufacturing Survey.
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
