More New Highs
Another week and another new high for the Dow Jones Industrial Average (Dow) – AND as I write this, the Dow is trading above 16,000 for the first time in history. In fact, the Standard and Poor’s 500 index (S&P 500) and the Dow both logged their sixth-consecutive weekly advance. Though we are still measuring the impact from the government shutdown on the economy (remember that?), the commotion we suffered in October is fading into the sunset and the spotlight is returning to the Fed, the recent earnings activities and economic activity. But read more – I have cool pictures of trains in this week’s blog!
Sectors
For the week, the S&P 500 was up over 1.50%. That’s a nice week, but take a look at the chart below that shows the returns for each of the ten S&P 500 sectors. Consumer Cyclicals, Health Care and Materials were all winners compared to the S&P 500 overall while Industrials, Tech and Utilities were the bottom three performers for the week. Note however that those bottom three were all up greater than 1%.
Earnings Season – It’s All Over For Third Quarter
2,268 companies have reported and the earnings season ended on Thursday.
The percentage of companies beating their revenue estimate for the third quarter of 2013 came in with a final tally of 53.2%, which is right about where it has been on average over the recent quarters but still lower than the average of 60% since 2001. It’s nothing to dance around about nor is it anything to start crying over.
The percentage of companies beating their earnings estimates finished at 58.6%, which was lower than the final reading of 62.2% from the second quarter. With the exception of a quarterly setback in the first quarter of 2013, this is the worst reading since March of 2009 (Source: Bespoke Investment Group).
Bespoke Investment Group follows corporate earnings very closely. They publish the chart below that shows the spread between companies guiding future earnings higher or lower on a percentage basis. Up until this quarter, the spread has been negative for the EIGHT previous quarters – meaning that there are more companies stating they will earn less in the upcoming quarter than the same quarter a year prior.
With the third quarter ending, this reading printed its NINTH negative quarter in a row. Given how well the market has done, I’ll take a tenth. One basic way to interpret this is that companies feel there is more upside in projecting a poor upcoming quarter and beating it (as 58.5% of companies did) than the opposite.
Chart – Bespoke
Some good news
Ok, this is for the train geeks like me…my retirement hobby will be to build a model train layout. Anyway, there is a difference between “intermodal” rail cars and regular rail cars. Below are pictures of intermodal rail cars. They are used to ship containers. These containers go from a ship, to a port and then get loaded on trains or trucking trailers for delivery without having to unpack everything. They do not ship commodities like grain, coal, fuel, cattle, etc. in these containers. So they are used to ship GOODS.
Below are “railcars” and they are generally associated with shipping commodities.
Thanks to Orcam Financial for the chart below. It shows that intermodal rail traffic is up 6.8% this last week. So for those of you who are still with me, it means that there are more goods being shipped on these intermodal cars and according to the Association of American Railroads latest press release, it’s been 19 straight weeks in a row that this traffic has been increasing.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values. The 2, 10 and 30 year Treasury is simply the yield at the close of the day.
(1) West Texas Intermediate crude spot price is as of end of week.
(2) London Bullion Market Association; gold fixing pricing at 3 p.m. London time.
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
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