The S&P 500 closed the week up 2% at a level not seen in two years. The index is now 101% above the March 9, 2009 low. In other words, it has more than doubled on price alone. The index has now climbed to within 13% of its all-time high of October 9, 2007. In the past few days, the S&P 500 broke out of a trading range that it had been in for more than three months.
Here is an interesting chart from Doug Short, who creates great market graphics in his articles on Seeking Alpha. (Click the chart to enlarge it.) It’s good to get a long-term perspective sometimes.
In this chart, the red area depicts a 20% decline from that all-time high—the usual definition of a bear market is a 20% decline from a recent high. We can see that that point (-20%) was reached in July, 2008, and the market stayed in the red zone until January of this year. Of course, what we’ve had since the all-time high is two distinct market trends. First a bear market pulled the S&P 500 down almost 57% by March 9, 2009 (17 months), then a bull market has pulled the market back up more than 100% by last Friday (26 months). By all appearances, the bull market trend is still intact.
Earnings season is in full swing. The “beat rate” is running around 70% so far, compared to a historical average of about 62%. The good earnings reports seem to be the major factor influencing investor behavior, with the market advancing steadily almost daily for the past couple of weeks. There was one nasty day (right after the last Timing Outlook) when S&P issued a “negative outlook” on the long-term credit situation in the USA, but the market bounced back almost immediately from that. With the steady rise in the past couple of weeks, I have invested the last 25% back into SPY (an ETF that tracks the S&P 500) in my Capital Gains Portfolio, which is now 100% invested again. The holding is protected to the downside with a 6% sell-stop that applies to all shares.
On the dividend-investing side, where the focus is on creating an ever-increasing stream of dividends rather than accumulating capital, I made a couple of changes to my Dividend Growth Portfolio as the result of an overdue Portfolio Review. With the changes, the portfolio’s yield on cost has now reached 5.1%. If you’d like to read an article about the Portfolio Review, go here: “Dividend Growth Portfolio Review: Sherwin Williams is Out.” Since last time three more stocks in the DG Portfolio have announced dividend increases: Chevron 8%, Johnson & Johnson 6%, and Procter & Gamble 9%.
If you would like to learn more about getting wealthy slowly through dividend-growth investing, take a look at TOP 40 DIVIDEND STOCKS FOR 2011: How to Generate Wealth or Income from Dividend-Growth Stocks.
2. Market Performance Since Last Outlook
(“now” figures are as of close Friday, April 29, 2011)
Last Outlook (4/15/11): 9.5 (positive)
S&P 500 last time (4/15/11): 1320
S&P 500 now: 1364 Change: +3%
S&P 500 at beginning of 2011: 1258
S&P 500 now: 1364 Change in 2011: +8%
S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1364 Change since 3/9/09: +101% (in about 26 months)
3. Indicators in Detail
• Conference Board Index of Leading Economic Indicators: New report April 21 increased marginally, bringing the streak to 9 monthly increases in a row. Positive. +10
• Fed Funds Rate: No change at 0% to 0.25%. The Fed is clearly committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Ben Bernanke, in his press conference last week, said that he does not see any rate tightening for at least two more Fed meetings (about 4 months). Note that at the end of June, “QE2”—the Fed’s $600 B program of purchasing Treasury bonds—will end. While not a rate hike, this will have the effect of tightening up the money supply as time goes on and may lead to bond-market and mortgage interest rates rising. Positive. +10
• S&P 500 Market Valuation (P/E): Morningstar pegs the current operating P/E of the S&P 500 at 16.1. This marks four readings in a row at that level, which makes me think that Morningstar has an error in its system. The computed number usually changes more frequently. However, since that number is well below the lower edge of the 17.3 – 21.1 neutral range, I will still consider this indicator positive while I look into the matter. +10
• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is 1.05, up from 1.03 last time. Any value within +/- 10% of 1.00 is neutral. The indicator has not strayed outside that neutral range for over a year, despite the market’s considerable increase in value over that time. The reason is the simultaneous growth in corporate earnings. +5
• S&P 500 Short Term Technical Trend: After the one-day drop just after the last Timing Outlook, the market has risen steadily. The S&P 500 has traded up on 10 of the last 12 trading sessions. The index has distanced itself from its 20-day simple moving average (SMA), which has also put some distance between itself and the 50-day SMA. This configuration of Index > 20-day > 50-day is the most positive lineup. +10
• S&P 500 Medium Term Technical Trend: Index > 50-day SMA > 200-day SMA. This configuration is the same as last time and is also the most positive you can have. +10
• DJIA Short Term Technical Trend: The Dow’s configuration is the same as the S&P 500’s. Positive. +10.
• DJIA Medium Term Technical Trend: Same as the S&P 500 chart. Positive. +10
• NASDAQ Short Term Technical Trend: The NASDAQ is always more volatile than the other two indexes. For a brief time, the 20-day SMA had dropped below the 50-day. But that condition reversed itself on April 15, and the configuration is now the same as the other two short-term indicators. Positive. +10
• NASDAQ Medium Term Technical Trend: Same as the other two. Positive. +10
TOTAL POINTS: 95
NEW READING: 95 / 10 = 9.5 = POSITIVE
