Forget the Dow; watch the S&P 500
It's grand that the Dow has hit new records, but many market experts see a new high for the S&P 500 confirming the rally's strength. Maybe they're right.
The betting is soon, and there's chatter that a new high for the index means the four-year bull rally will continue.
It did not happen on Wednesday. The S&P 500 closed up 2 points to 1,541 but is still 24 points below its 2007 peak close of 1,565.15. The Dow was up 42 points to 14,296, a new closing high; it also set a new intraday high of 14,320.65. The Nasdaq Composite Index ($COMPX) slipped 2 points to 3,222.
It makes sense that the S&P would give analysts optimism. The obvious reason is the Dow consists of just 30 stocks; the S&P 500 includes 500 stocks and represents roughly 75% of the entire U.S. stock market capitalization.
Among its members are Apple (AAPL), Google (GOOG), Amazon.com (AMZN), Macy's (M), Kroger (KR), Costco Wholesale (COST) and Ford Motor (F). All are among the largest U.S. companies by revenue.
Plus, many money managers watch the index obsessively because they lose assets -- and jobs -- if their investment decisions and results don't beat the index. The largest exchange-traded fund is the SPDR S&P 500 (SPY) fund, which tracks the S&P 500.
But the S&P 500's history since 2000 might want to give some investors at least a little pause.
On March 24, 2000, the S&P 500 closed at what was then an all-time high of 1,527.46. It fell for the next two-plus years before bottoming in October 2002 -- as the U.S. stock market was crushed by the dot-com bust and then the aftermath of the Sept. 11, 2011 terror attacks.
The index didn't top its 2000 high until Sept. 27, 2007. Eight sessions later, it peaked and fell 57% over the next 17 months.
Market bulls will say that the Dow offers a different scenario for stocks.
The Dow's new record has been built on low U.S. interest rates, rising profits among most of the Dow companies -- all big multinationals -- and continued cost-cutting that has limited employment growth in their U.S. operations. The Dow's big run has nonetheless cheered analysts, many of whom believe it suggests the rally has another year or so to run.
That's because the Dow broke its 2000 record close in August 2006 and moved 3,000 points higher over the next 12 months.
Moreover, Dow theory supports the idea of a stronger market ahead. Dow theory says new highs for the Dow industrials and the Dow Jones Transportation Average ($DJT) are signals the market could move higher.
The difference between 2013 and 2007 is the problems that were going to smash the stock market were emerging: a bursting real estate bubble, jumping oil prices that would weigh on consumer spending and a collapse of the domestic auto industry.
Fast forward to 2013. Oil prices may have peaked for the year. (OK, Iran is still a big question mark.) There isn't a real estate bubble, and the automobile industry isn't on the verge of falling apart. There are worries about job growth, however, and about the effects of austerity on public-sector employment -- as well as continuing fears about economic health in Europe and, maybe, Asia.
A bonus thought:
While all but one Dow stock is now higher than it was at the market bottom in March 2009, 18 Dow stocks are currently higher than they were on Oct. 9, 2007, at the last Dow peak.
That total assumes UnitedHealth (UNH), Cisco Systems (CSCO) and Travelers (TRV) were members of the Dow in 2007.
General Motors (GM), which went into Chapter 11 bankruptcy protection in 2009, was a Dow component. So were Citigroup (C) and American International Group (AIG). All three were casualties of the financial crisis.
Home Depot (HD) is the Dow's best performer since the 2007 market peak, up 108.5%. IBM (IBM) is up about 75%, and it contributed 678 points to the index over that time.
Alcoa (AA) is the laggard, down 79%, followed by Bank of America (BAC), down 78%, and Hewlett-Packard (HPQ), down 62%.
Here's how the current Dow components have done since 2007.
|Points gained by Dow components since 2007 peak|
|Company||Tues. close||Chg. From 2007 Dow peak||Points contributed to Dow|
|Walt Disney Co.||$56.48||59.32%||161.50|
|Johnson & Johnson||$77.66||17.22%||87.62|
|Procter & Gamble||$77.05||8.40%||45.85|
|Bank of America||$11.55||-78.03%||-315.01|
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hmmmm .... sez you charlie ....
From the wires: "Despite the efforts of the Fed to use easy monetary policy to boost job creation, the country's economy remains in "neutral" more than three years after the end of the recession, a top Fed official said on Wednesday.
"It's not possible to create jobs through monetary policy alone," Dallas Fed President Richard Fisher said at a World Affairs Council of San Antonio event. "The U.S. remains the economic engine of the world...it's not China, it's not Europe, it's the U.S., and the U.S. remains in neutral."
Fisher, repeating a well-worn analysis of the limits of the Fed's super-easy monetary policies, said the U.S. central bank does not have the power to pull the economy from its standstill as long as U.S. lawmakers do not do their part.
"We have provided fuel for an economic recovery because Congress and the Executive have not provided the incentives for growth," Fisher said.
and no real estate bubble? foreclosures being snapped up like hotcakes by hedge funds as investments with low interest arbitrage (paid for by us tax paying schm***s, and farmland now untouchable. neutral .... neutrality .... unbiased .... try it ....
Not only the S&P 500, but also watching the RUT2K...Or, aka, Russel 2000.
Between the two, you can get a wde heartbeat of the markets...
The Wilshire is another, but gets confusing with the components..
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