Tags: Bulls | Dow | 13000 | stocks

For Now, Bulls Firmly in Charge as Dow Cracks 13,000

Tuesday, 21 Feb 2012 01:29 PM

The Dow Jones Industrial Average cracked the 13,000 mark in trading today, firmly putting the bulls in charge — for now.

Clearing that psychological level puts the index within spitting range of its all-time high. Since the market bottom in March 2009, the Dow has put back on better than 96 percent. The previous high-mark close was 14,164.53 on Oct. 9, 2007.

“Every fundamental you can measure for the financial markets, price–to-book ratio, price-to-earnings ratio, price-to-sales ratio, and even price-to-cash-flow, are all at historical lows. Corporate earnings are at an all-time high,” fund manager Neil Hennessy told clients in a recent note.

“I believe that these fundamentals provide substantial evidence that there is strong value in the marketplace today.”

The Dow came closest to the 13,000 number in April 2011, hitting around 12,800 before plunging back below 11,000 by late September. It has been working its way back ever since but put on a burst of speed in early 2012.

The Dow is up 6.29 percent year to date, while the S&P 500 is up 8.58 percent and the Nasdaq has put on 13.65 percent.

Part of the reason for the surge is that small investors have waited to get in, experts note. "We are in a Goldilocks scenario for equities. A lot of investors are underinvested in this market and they will move money into the riskier assets,” Philipp Baertschi, chief strategist at Sarasin, told CNBC.

He sees stocks moving higher still.

Mutual fund managers are buying, too, particularly financial stocks, the most obvious laggards of the major companies. Big retailers, including Macy’s and Home Depot, recently posted reasonably strong results.

News of a finalization in the latest round in the never-ending Greek bailout helped firm sentiment toward stocks as well.

Economically, the United States might be the shiniest penny in a bad batch. Data from the OECD has the United States growing in the fourth quarter by 0.7 percent, up from 0.5 percent in the previous quarter. In Europe, GDP fell by 0.3 percent and Japan slipped by 0.6 percent, in comparison. The entire OECD area lost ground by 0.1 percent of total GDP.

New data from the Chicago Fed showed the U.S. economy has stayed in positive territory in January, at 0.22 on its activity index compared to 0.54 in December. The bank called that result “slightly above its historical trend” for the three-month moving average.

A stock pullback could be ahead, yet bullish investors can drive share prices upward for long periods, points out David Kotok, chairman and chief investment officer at Cumberland Advisors.

The lure of easy gains is bringing cash off the sidelines, feeding the rally, he says in a note to clients. Second, the stock market’s aggregate value compared to the economy is high but nowhere near peak levels seen in 1999 and 2007, although this measure is a poor indicator for market timers, he points out.

While some Fed watchers speculated that a third round of quantitative easing (QE3) was imminent and that easy money would drive investors into risk assets. "There will be no QE3," Dallas Fed President Richard Fisher said recently, according to a Reuters report.

Yet while the rest of the Fed members have been tight-lipped, just the specter of easing might have been enough to drive stocks higher. There seems to be just as much interest in a reviving U.S. economy and, in no small part, fear among small investors that they might miss the best trade of the year by sitting out equities.

Meanwhile, rising gasoline prices are becoming a concern, with some experts suggesting oil could hit $140 a barrel if tensions rise in the Strait of Hormuz.

Gas prices are already up 25 cents since the beginning of the year, currently averaging $3.53 a gallon nationwide. "We are on track for a very expensive summer," Sander Cohan, a gasoline-market analyst in Wakefield, Mass., told the Christian Science Monitor.

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2012-29-21
Tuesday, 21 Feb 2012 01:29 PM
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