I am going to say it again, and I also promise that I will not say it in the future unless the S&P joins the Dow in record territory as well, as the former has actually gone over 1560 on six occasions since March 14th but each occasion has not quite been able to overtake its best-ever level of 1565.15 reached on October 9, 2007. On the other hand, the Dow closed at a record high yesterday with a 112 point advance to 14,560, which will now stand as the benchmark until this level gets taken out as well. And what I am going to say is the classic line that my cynical old uncle would spout on relevant occasions, and I will say it to the nervous nelly Cyprus crowd whose selling caused the major averages to close lower for only the second week this year last week on their obsession with an island country that is basically a tax avoidance scheme for wealthy Russians and British people and companies as well – “So, nu, what did you accomplish?”
After starting the holiday-shortened week with a 64 point loss on Monday, things made a dramatic upside turnaround yesterday to more than make up for the lower showing on Monday, with the Dow advancing to that new record as mentioned earlier with a closing rise of 112 points, and those last 20 points or so looked a bit contrived as some sort of very very late buy program pushed the average up to that best level minutes before the close, which is one of the reasons that things are easing off today, to sort of make up for those little shenanigans.
Breadth numbers were very strong at a 21/9 upside ratio and the VIX cooperated with a decline of .97 to 12.77, once again getting down to those lower levels near support at 11.30. Outside markets were somewhat quiet, as the only one that made a move of any consequence is the one that most people would not want to see make this sort of move, and this was crude oil, which was once again emboldened by the strong advance in equities and as a result decided to contribute to the upside party with a very strong gain of its own, up to $96.18 and why this is in anybody’s interest aside from those market participants who push it to these potentially destructive levels is beyond me, as if it keeps advancing too much more, it is really going to eat into consumer spending, as if the payroll tax increase this year has not already done so as well.
So what happened to get the upside party going once again? Cyprus became a non-event yesterday because the market did not want to concern itself with negatives, so it decided to look to a couple of better economic reports here, as the January CaseShiller Home Price Index rose at its fastest pace since June 2006 and the headline number for February durable goods orders beat the estimate as well. A closer look at this report shows that excluding the always volatile transportation component, the index actually declined by 0.2% and the most important component, namely the non-defense capital goods sector that is a proxy for business spending, declined at its fastest rate since last July.
What was also surprising about yesterday’s market advance was that two other reports released were on the really weak side, as March Consumer Confidence showed a large decline down to 59.7 from 68 as the double-whammy of higher gasoline prices and lower take-home pay is eating into consumer spending. In addition, February new home sales declined by more than expected as well. But never mind, the market was in the mood to go higher, for sure.
After yesterday’s move to new all-time highs in the Dow, things decided to take a breather today earlier in the session, as the Dow fell to its low on the opening with a decline of 120 points right off of the opening bell, but has since managed to pare those losses significantly and is “only” 37 points to the downside as this is being written, near its best level of the day so far. Unrelenting strength in components JNJ at a further new all-time high, in addition to another stock that has done really well this year, MCD, is providing the upside fuel, along with XOM and UNH for whatever reason. Breadth numbers have improved as well from really awful levels on the opening with a negative 11/17 ratio at the present time. And the VIX is sort of going along for the ride, as it really went bonkers on the upside on that poor opening, but is currently only higher by .24 to 13.01.
And on any lower day, market experts can always point to the amorphous “explanation” that worries over Europe’s debt crisis situation are taking their negative toll, at least for one day. Then there was a report on February pending home sales which fell by a fraction, and this is also being used as a supposed reason for the decline despite the fact that the market ignored yesterday’s really worse than expected decline in February new home sales on its way to that new all-time high Dow close.
Probably the strangest move in the outside markets is coming from Treasuries, where the yield on the 10-year maturity made a large decline down to 1.85% on these supposed European concerns and on the fact that these latest housing reports were weaker than expected as mentioned above, and this supposedly shows that the Fed will keep interest rates at current record low levels for the longest time. The Euro is getting blasted to the downside to its lowest level since last November due to you know where and Italy is also getting thrown into the downside equation as well on a poorly received 5-year note auction which saw the highest yields since last October, the nerve. And blink your eyes, as mighty crude oil is declining a bit, down to $95.85 a barrel despite the fact that inventories rose to a nine-month high, but never mind.
We can now add the fact that the S&P has been over 1560 seven times since March 14th, and it would appear that it is only a matter of time that it makes another assault on that 1565.15 best-ever level as long as the VIX can remain above the consecutive support levels of 11.30 and then the ultimate downside level of 10.
This week’s earnings reports will not be as important as some of last week’s were (ORCL, FDX, NKE, and LEN) but here they are – tonight: RHT, TXI; Thursday: FINL, GME, and MOS.
Economic reports for the holiday-shortened week will be more important than earnings and the week will finish tomorrow with: third and final estimate of 4Q G.D.P., weekly jobless claims, March Chicago Purchasing Managers’ Survey, Kansas City and Milwaukee Activity reports.
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}.