There were two things that we should take away from yesterday’s ninth consecutive gain for the Dow and its sixth record high close in a row. And that is, after taking a rest for one day on the old-time civil service expression – “Another day, another dollar”, we can certainly say that this timeless expression applied to the stock market once again, as the other averages joined the Dow to the upside and the real hero was once again the Dow Transports, which closed with a 100 point gain at a new all-time record high along with the Russell 2000 Index of small stocks and the mid-cap indexes as well closing at their best levels ever.
The second point that we can take away from yesterday’s market is that the only thing that might be able to help the stock named after a fruit is perhaps if the new Pope gave it his blessing, because the action in this one yesterday was worse than awful, as on a day when all of the major averages ended higher, the shares of this stock could not maintain a 6 point advance that they had achieved in the middle of the day and finally ended with a nominal closing loss of .08, but it was a miserable performance because the other averages were moving to the upside on a nominal basis very late in the day.
The Dow began the day about even, then declined to its worst level with a 39 point loss at 10:10am for whatever reason, which perhaps was something that an official in Europe said, but never mind, as from those lows it started doing what it has done all year, namely to start chopping irregularly higher to finally end with a closing gain of 5 points, to 14,455. Its intraday high was 14,472 yesterday and 14, 478 on Tuesday, so there seemed to be some upside resistance at these levels, which of course got obliterated on the upside today, and so much for that.
Breadth numbers were also positive at a 17/12 upside ratio and the VIX, which was trading in concert with where the Dow had been both on the upside and the downside made another very late collapse to end with a .44 loss down to 11.83, once again getting close to near-term support at 11.56 and ultimate downside support at 10.
And as has been its trend lately, the Dow was led by its highest-priced stock, namely IBM, whose upside gains produced 11 points of Dow advances just by itself, which meant that if this one was unchanged on the day, the Dow would have been lower, but then again this type of thinking is a bit too theoretical as the Dow, however it is composed, is obviously in a historically strong uptrend. In fact, as the financial media has been blaring all over the place, the nine straight days of gains is the longest such winning streak since November, 1996 and as such it becomes an event of historical stature.
The main upside motivator was the February retail sales report which was released at 8:30am, which once again makes a person wonder why the market took that early dip, which was over an hour after this report was issued and was the primary “explanation” for the better close. It said that the gains were more than forecast after the January numbers were revised slightly higher as well. The headline number was better by 1.1%, the highest since last September, but excluding autos and gas, it was higher by only 0.4%, as the still very elevated price of gasoline at the pump always distorts the number to the upside. The most important sector of this report is the so-called “core sales”, which eliminate automobiles, gasoline and building materials and most closely corresponds to the consumer spending component of G.D.P., and this rose by 0.4% as well.
Today the major averages did not even trade lower early, as has been their recent wont, to allow buyers to come in on the “dips”, so to speak. It opened on the upside and has stayed that way, reaching its best intraday level with a gain of 73 at a new all-time high of 14, 528 before easing off a bit to be ahead by 51 as this is being written .And once again to show how the VIX is cooperating, it is currently lower by only .26 to 11.57, which is the level it was at on Monday’s close when the S&P was 1551 versus the 1560 level it is at now, once again showing how the VIX in its own weird way has allowed stocks to continue to move higher as it stays at the same levels it was when things were lower. At this rate, we can theoretically have advances until it gets down to 10.
Breadth numbers are positive at an 18/11 ratio and the yield on the 10-year Treasury note continues to maintain itself at the higher end of the range, at 2.03%, obviously a reflection of what is being perceived an ongoing improvement in the labor market as evidenced by today’s weekly jobless claims report, which declined for the third straight week to its lowest level since January and the four-week moving average fell to its lowest level in five years. The February P.P.I. report was sort of a non-event because the core rate excluding food and energy was only 0.2% higher despite the headline number being 0.7% higher on the back of record high gasoline prices at the pump for this time of the year.
The Euro actually rallied from as low as 1.2910 for whatever reason as one would have thought that today’s stronger U.S. data would have caused it to stay down, and this is helping the price of both crude oil and gold to increase nominally as well after having been lower earlier in the session.
And it goes without saying on the “another day, another dollar” theme that the Dow Transports, the Russell 2000 small-cap index and the mid-cap indexes are all at their………….ever, you fill in the blanks,
With the Dow at ongoing record high levels and the S&P within hailing distance of its best price ever as well, all of those angry old men who would appear on CNBC in the morning during last fall’s presidential campaign and bemoan how “terrible” Obama was going to be for the economy and this is the reason why they were gung-ho behind Mitt Romney, the businessman with real-world economic experience as opposed to the constitutional law professor and community organizer. Now with the stock market putting in a record performance, I wonder if their tune has changed, and this group would include Jack Welsh, Donald Trump (whose bizarre rantings on Election Day caused him to disappear from what had been his traditional “Trump Tuesday” section where the station gave him free reign to pontificate about his nonsensical theories, all of which have been discredited (the birther issue as the most blatant), and a calmer but still dyed- in-the-wool Republican stalwart, Wilbur Ross, who also praised Mitt’s virtues as being “better” for the economy.
We have been pointing out the question of whether or not the market is overvalued at its new highs for the Dow and close to new highs in the S&P. At the October 2007 top, the price/earnings multiple for the Dow was 17 and for the S&P it was 17.5. Today it is 14.1 for the Dow and 13.9 for the S&P assuming that earnings for the latter are going to be $111 this year. The bullish argument is that the market is still undervalued at this level and the bearish one is that investors do not have faith in earnings expansion, which is why the multiples are lower this time. One also has to take into account the record low levels of interest rates at the present time in calculating why the p/e multiples are lower now as well, because stocks do compete with bonds for investor participation.
Earnings are virtually over for the fourth-quarter and there will be some specialty retailers reporting this week that will have no effect on the overall market.
Economic reports this week will finish with: March NYState Empire Manufacturing Survey, February C.P.I., February industrial production and capacity utilization, mid-March U. of Michigan Consumer Sentiment Survey and the March NAHB housing market index.
First quarter earnings rose by 6.2%, increased by 5% for the second-quarter, were flat for the third-quarter and were 6.2% higher in the fourth-quarter. The current projection is for a gain of 3.5% in the first-quarter of 2013.
The S&P trades at 13.9 times the projected 2013 earnings of $111. Earnings were $85 in 2010, $92 in 2011 and $102 in 2012. The estimate for 2013 is $111, a gain of 9%. 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 have had 14 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. G.D.P. rose by 2.2% in 2012, and is projected to increase by 2% next year, according to various surveys.

Donald M. Selkin

Don Selkin is the Chief Market Strategist at National Securities Corporation, member FINRA/SIPC, (NSC) and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, Associated Press}.