After not having said it for a while, I will return to the expression that the old-time civil servants would say when they would dutifully punch out their time-clocks at the end of another long, exhausting day, namely – “Another day, another dollar”, and difficult as it is to believe, this is what the stock market has become, as most of the major averages hit new all-time record highs once again yesterday.
The S&P closed at a new all-time best ever level for the fourth day in a row, and has advanced for 11 out of the past 13 days. The Dow has now advanced for 17 consecutive Tuesday’s, which is a record, although apparently it has advanced for 24 consecutive Wednesday’s at some time in the past. It, along with the S&P, Dow Transports, Russell 2000 Index of small stocks and the mid-cap indexes, all made record highs.

And how many times have I pointed out that those believers in the VIX are basically hurting their own negative cause very badly because the refusal of the VIX to go lower as it remains well above its two support levels of 11.30 and the ultimate downside one at 10 will allow the market to keep advancing, difficult as it is to believe at these levels and also during the historically treacherous month of May. Yesterday was a classic example of the folly of these VIX buyers, either through the purchase of calls or the various ETF’s and futures products that are around. With the Dow advancing by 87 points and the S&P ahead by 8, the VIX had the nerve to finish with a small GAIN of .17 to 12.83, and this is almost too unbelievable to comprehend. On the other hand, if one thinks that stocks will keep advancing from current levels, then this in a sense is the best thing that can happen, namely the major averages moving higher while the VIX refuses to go lower.

The Dow began the day with a 30 point advance, then had the nerve to drop to a gain of only 3 points at 10:20am from which level it made a rapid upside acceleration and remained at the best levels of the day before finally ending with an 87 point advance, the first time that it has closed above the nice round number of 15,000. Breadth numbers were at a strong 3 to 1 upside ratio and the VIX had the nerve to end higher as mentioned above. It had actually been nominally lower at 1pm when the Dow was up by 70 and even though the major averages moved higher into the close, the VIX went from this small loss to a small gain, and go figure that one out, as it showed the fact that as stocks were going up, more people were putting on these hedges to ostensibly “protect” their portfolios from losses, if in fact these losses were to occur.

And naturally as stocks moved higher, the yield on the 10-year Treasury went up as well on the ostensibly better economic environment, as it reached 1.78% after having declined to its 2013 low just last week after the incorrect ADP report showed that job growth was supposedly going to slow down, which of course did not happen. Crude oil had the nerve to decline a bit, down to $95.50, but one can see that the oil market is getting ready to put the screws to consumers once again as the summer driving season is upon us. Gold got blasted to the downside, but still remains in its new lower trading range despite cries in the land for much lower prices, and when that cry is heard, the market never satisfies all of the supposed “know-it all’s”, as it appears to now be in a new lower trading range between the recent panic- induced lows of $1,350 and resistance at $1,485.

Even though the upside has taken on a life of its own, every day there has to be an “explanation” for why things go higher, and yesterday’s “reasons” were that the Reserve Bank of Australia lowered its benchmark interest rate down to a record low 2.75%, joining its brethren in the U.S., Japan, England and the E.U. in the process of providing easy credit, and this worldwide stimulus from central banks has been a major factor in the advance, no doubt. Then we had the fact that March German industrial production rose in March when a decline was expected, and why not. Finally, in order to throw in some earnings flames on the upside fire, market experts had look at some earnings reports, and of all obscure stocks to use as an example, they took that maker of consumer fashion accessories FOSL as the major upside influence for earnings, which just goes to show that it is about time that the reporting season comes to an end.

The Nasdaq sort of took the day off with a closing gain of only 3, as the large technology leaders that had done so well lately decided to go lower, and this group included Dow components CSCO and MSFT, in addition to recently strong AAPL, GOOG, NFLX and PCLN ahead of its earnings tomorrow night. On the other hand, CAT, which has been on fire lately after being the worst Dow performer this year, continued to move up along with other industrial, cyclical types of issues, as well as energy and resource names.

Today is a terrific example of another phenomenon we have seen this year, namely the ongoing buy on the dip mentality, which has accounted for the fact that the steepest downside correction we have seen in 2013 has been the 3.2% S&P decline in mid-April. As an example, the Dow started out with a loss of 34 points, heaven forbid, right out of the starting gate, perhaps a little negatively influenced by a lower price in the shares of DIS after its good earnings report but let is also be remembered that the stock is up by 33% this year and recently reached a new all-time high. This would be a classic case of “buy on the rumor, sell on the news”, although it would appear that if the market continues to go up, this one will certainly be part of the further upside celebration. From those lows, it immediately turned around to the upside and is currently ahead by 14 as this is being written, at its best level of the day.

And after taking the day off yesterday, the technology stocks are doing well, as for instance the Nasdaq went positive at 10am while the Dow was still 15 points lower, which is another one of the recent examples of how this old-time dynamic is supposed to work. Financial stocks are doing well, extending their recent gains and technology is being led by GOOG at another new all-time high.

Breadth numbers are at a positive 17/12 ratio and once again the VIX is allowing for further upside movement as it refuses to go lower, hovering on either side of unchanged at 12. 83. Bond yields are slightly lower ahead of today’s auction and the Euro is gaining the most in three weeks, up to 1.3177 on German industrial production surprisingly rising for the second month in a row, and this of course is being thrown out as a reason for stocks to move higher as well. Crude oil is making back yesterday’s losses right in time for the start of the summer driving season as it is back up to $96 a barrel. Gold is regaining some of yesterday’s losses as it meanders around within the above-mentioned trading range with buyers now appearing on price dips to the lower levels.

Earnings season is mercifully winding down and for the first-quarter, with 450 S&P companies that have reported, 70% have beaten the estimates, which compares to the average from the last four quarters at 67% and the average from 1994 of 63%. Revenues have only beaten in 47% of the companies, and this compares to an average beat rate of 62% in the last year and 52% since 1994. Earnings are projected to gain 5%, which is now above the January estimate of 4.3% and well above the April 1st projection of only 1.5%, which is an obvious reason why stocks have done so well lately.

The earnings calendar for this week finishes with: Thursday – NVDA and high flying PCLN.
First quarter earnings rose by 6.2%, increased by 5% for the second-quarter, were flat for the third-quarter and were 6.3% higher in the fourth-quarter. The current projection is now for a gain of 5% in the first-quarter of 2013.

The S&P trades at 14.5 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 and it has been 14.4 for the last 10 year’s average.

After four consecutive quarters of negative G.D.P. growth, we have had 15 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% in 2013, according to various surveys, with 2.5% in the first-quarter and then in the low 1’s for the second and third-quarters before a fourth-quarter acceleration to over 4%.

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}.