The bull was in full snorting mode last week, as stock prices jumped more than 1% company stocks led by a wide margin, but the bounty was shared with big companies, too, as the Dow Jones Industrial Average inched closer to 17,000. Trading was light, as it has been all year.
Most notably manufacturing and employment and some of the buying was driven by short covering, traders say.
There’s a sense of gathering momentum. For example, the percentage of stocks above their 10-day moving average is back to 85%, according to Wellington Schields. That’s a strong technical-strength signal about the bulls’ basic health, even
if the market usually stalls in the short term at such levels.
Similarly, there are indications economic velocity is improving, if the strong manufacturing and jobs data last week are any indication, says Peter Kenny,
chief executive of broker-dealer Clearpool Group. And though the low trading it’s less and less an arbiter of whether the market’s move is valid.”
In spite of the spring rotation out of biotech and momentum shares, where some stocks lost 20% to 40%, the broad market’s been resilient, says Marc Pado, CEO of Dow Bull Advisors. Those short have expected the emergence of the traditionally weak summer season for the market. However, the rotation back into those beaten-up stocks; the data; and Thursday’s easing by the European Central Bank, made shorts wonder, “Why be short?” and some threw in the towel, he says. Money doesn’t want to leave the market, even if it rotates out of one sector temporarily, he adds.
Last week, the Dow rose 207 points or 1.2% to 16,924.28, a new high. The Standard & Poor’s 500 picked up 26 to 1949.44, also a record. The Nasdaq Composite index rose 2%, or 79, to 4321.40. The Russell 2000 index soared 3% to 1165.21, and is back in positive territory for the year.
Friday, the Labor Department said that in May the U.S. added 217,000 jobs, in line with expectations. The unemployment rate was 6.3%, unchanged from April.
Investors don’t see macroeconomic and U.S. earnings growth factors as negatives and they won’t likely be that, says Michael Mullaney, chief investment officer at Fiduciary Trust. U.S. and global leading indicators are up, and it looks like “a mini-industrial revolution.” The single biggest factor in the rest
of 2014 is likely to be geopolitical risk, he adds.
The market’s valuation, however, can no longer be called fair. The bears argue stocks have already anticipated a stronger second half for the economy, given the S&P’s 2014 price/earnings ratio of 16 times, a bit higher than the long-term average of 15.
This week sees fewer U.S. data releases after the economic firepower of last week, so short of a major exogenous surprise we might be in for sideways action.
(Source: Barrons Online).