Market Summary
Equities rallied this week after a ceasefire agreement
between Ukraine and Russia and apparent progress toward a deal on Greek debt.
The S&P 500 index closed at a record high on Friday, as energy shares
gained with oil prices, while the Nasdaq composite index hit a 15-year high
helped by technology stocks. The Russell 2000 index of small-cap shares also
finished at a record high. The S&P MidCap 400 Index made a new
all-time high a few weeks ago. For the week, the Dow rose 1.1 percent, the
S&P 500 gained 2 percent and the Nasdaq added 3.2 percent.
Equity indexes are starting to bust a move with the MidCaps
making the biggest surge. The Nasdaq and Russell 2000 indexes are putting in a
nice rallies after strong gains in 2013. These two indexes tend to be leading
in nature (both to the upside and downside) and could see continued upside. In
addition, all the major indexes are having HUGE volume accumulation, which is
considered a sign of institutional buying. All the major equity indexes are in
the black for the first time this year. Gold continues to be the best
performing asset for the year. The biggest change over the past few weeks is
the Treasury bond crash.
Investment Analysis
Of the 391 S&P 500 companies that have reported
earnings, about 71.1 percent have topped profit expectations, according to
Thomson Reuters data, while 57.5 percent have beaten on revenue. The earnings
growth rate for the quarter is 6.6 percent, down from the 11.2 percent expected
on Oct. 1, but up from 4.2 percent expected on Jan. 1.
So far in the first quarter of the year, Real Estate stocks
are the clear leader. After being depressed for most of the past few months,
Energy and Gold shares are coming on strong. The leading equity class for the
quarter is Mid-Capitalization stocks that are benefitting from a strong
domestic economy. The companies that compose the Mid-Cap index have less exposure
to overseas markets compared to the larger indexes and their fortunes are more
directly tied to what happens in the U.S. You can see in the 30-day S&P
sector graph below how Energy has been far and away the top performing sector
the past thirty days. This supports the contention that the recent crash in
energy stocks has bottomed out and is poised to move higher. For most of the
past few months Utilities were the best sector but you can see this group has
converted to the biggest loser. Investors were buying utility stocks for their
yield during global economic uncertainty. Now investors are leaving safe-haven
utilities stocks as they anticipate U.S. Federal Reserve interest rate
increases later this year. Global uncertainty has stabilized and investors are
selling utility shares to bid on energy and material stocks.
By Gregory Clay
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