On the lightest volume of the year, the market did what it has done every Monday this year, namely decline even though the major averages have been ahead for six straight weeks. This is quite an anomaly in the sense that Monday seems to be some sort of outlier kind of day in 2013 as the market has declined on Monday January 7, 14 and 28 (it was closed on the 21st in observance of the Martin Luther King holiday), February 4 and now the 11th as well. Why this is so is an argument that can go on and on, but certainly if this pattern persists, Mondays would be a good opportunity to get in on these sorts of dips, although they have not been that severe for the most part and not all stocks decline on these days in any event.
The Dow reached its worst level of the session with a 52 point decline on the 10:15am low, from which level it bounced around to better levels and reached its high with a 7 point loss at 3:50pm before selling back to finally end 21 points lower, and this was sort of a payback for XOM, which rose in that bizarre Nemo-related strange very late upward push on Friday and was forced to give back those gains yesterday, which accounted for a good part of the Dow’s very late behavior on both days.
Breadth numbers were nominally negative at a 13/16 ratio and the VIX finally ended lower after being slightly higher for most of the session, closing lower by .08 to 12.94. The VIX options for February actually expire today and this is going to be another bloodbath for the call buyers who are told by the various television touts to “protect” their portfolios by buying VIX calls in case the market undergoes a severe downside correction and calls on the VIX rise as a result. Unfortunately for these people, the VIX has stayed at very low levels for the longest time and as a result, the number of worthless calls which go out tonight but do not expire until tomorrow’s opening, will be astoundingly high, as they have been for the past few months.
In outside markets, the Euro recovered after declining to a two-week low after a top official in that part of the world said that talk of its being overvalued was just a “diversion” from the various governments there sorting out the problems of their economies. This little rise did not help the price of gold, which fell back to a potential support level at $1,650. Otherwise, the bond market was quiet but good old crude oil could not stand being initially lower under $95 a barrel and rose back up to the higher and more dangerous levels of $97 and its gains never seem to get contained to where they should be, as energy traders use any kind of excuse to get the price higher, as yesterday the fact that the Euro made a slight recovery was supposedly the “explanation.”
And guess what – after taking its usual Monday off, the market has once again resumed its upside path, trying for seven straight weeks of gains. And the Dow followed its recent pattern as well as after a hesitant start, it has now pushed irregularly higher and reached its best level with a 44 point gain at 12:30pm and is trading close to that level as this is being written. Breadth numbers are doing nicely as well at an 18/10 ratio and the VIX is staying around unchanged at 12.94 and if it stays at this level it will inflict worthless merchandise on 2.5 million buyers if February calls above the 13 level, as already alluded to above.
With the Dow ahead by around 40 points, the Nasdaq is once again reverting to the pattern that it has exhibited for much of the year, namely lagging as a result of another poor showing by the stock named after a fruit, after its C.E.O. made some comments in the old C.E.O. of CSCO pattern, namely saying things that hurt the performance of the stock, as for instance when he said that “Cash isn’t burning a hole in our pocket”, which basically means that they are not going to increase their dividend which is still low by the standards of other technology stocks that have also seen better days. He also dissed as a “silly sideshow” the suit by a large hedge fund and owner of shares to block a proposal to eliminate the board’s ability to issue preferred stock without seeking shareholder approval. He then said that the board will “seriously consider it.” This knocked the stock back from what had been an early gain into a loss of as much as over 10 points, breaking the recent upside momentum that it had recently developed after a 38% decline from the high last September.
For want of anything else, the market is perhaps getting optimistic ahead of the President’s State of the Union address tonight in which he will make proposals for spending on infrastructure, clean energy and education. He will also apparently argue that promoting economic growth is the best strategy to reduce the federal budget deficit that has exceeded $1 trillion in each of the last four years, so we will see how the market reacts to his talk and like any other major economic event, the higher it goes into the “report”, so to speak, the bar gets set a little higher as the market most of the time discounts any good news that might come out of what he has to say because of its gains ahead of the event itself.
And continuing their better pattern this year, the financial stocks are once again leading the upside, along with homebuilders on the back of earnings from MAS. Otherwise, some market pundits are attributing the gains to “better earnings”, although I would not consider companies such as AVP, FOSL and KORS to be market leaders but when the market is rising once again, this “explanation” is always a good throw-away sort of reason.
Of the 354 S&P companies that have been reported so far for the fourth-quarter, 72% of them have beaten the earnings consensus and 66% have beaten on the revenue side as well. Earnings are now projected to be ahead by 5.3%, 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. It is also interesting to see this number slowly rise as the earnings period is moving along, which has sort of justified the strong upward move that we have seen in stocks this year. The percentage of companies that has beaten consensus has been 65% over the past four quarters and 62% since 1994.
This week’s earnings lineup includes: Wednesday – Dow component CSCO plus WFMI, NTAP and AMAT; Thursday – CBS, GM and PEP; Friday – KFT. Economic reports will pick up as the week moves ahead, with: Wednesday – January advance retail sales and December business inventories; Thursday – weekly jobless claims; Friday – February NYState Empire Manufacturing Survey, January industrial production and capacity utilization and February preliminary U. of Michigan Consumer Sentiment Survey.
First quarter earnings rose by 6.2%, increased by 5% for the second-quarter, and were flat for the third-quarter. 5.3% 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 14.7 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 had 12 consecutive quarters of positive growth, starting with the third-quarter of 2009, every quarter in 2010, every quarter in 2011, and every quarter in 2012 except for the fourth-quarter, whose first estimate came in at -0.1%, but the number is still subject to revision. G.D.P. now has risen by 2.2% in 2012, and is projected to increase by 2% next year, according to various surveys.
Donald M. Selkin