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Dow Jones Industrial Average Is 2% Away From An All-Time High.


Well, the Dow Jones Industrial Average (DJIA) finished the week at another five-year high and is now just 2% away from its all-time high of 14,165. The Standard & Poor’s 500 Index (S&P 500) ended the week above 1,500 for the first time since December of 2007. The Russell 2000 Index, which is measure of small-cap stocks, hit another all-time high.

Here’s the table of returns – are pigs flying?

Weekly Market Returns 1 28 13 resized 600

We don’t think so.  Earnings are coming in strong, employment is getting better and housing remains strong.

Though no single day in the market has been particularly strong, the S&P 500 has now posted eight straight days of gains.  Last week’s action came on robust German business sentiment data and several strong earnings reports from blue chip companies, including Proctor & Gamble, which lifted investor sentiment. For the week, the Consumer Discretionary sector led the sector rankings while Financials came in second and Energy came in third on strong earnings reports. On the other hand, Technology flat-lined as Apple shares continued to be hammered while Consumer Staples and Materials rounded out the bottom 3 performing sectors.

The S&P 500 is already up over 5% this year and just 4% off from its all-time high.  Below is a chart from Bespoke Investment Group that shows the S&P 500.  While most investors prefer their investment returns to be more like the smooth assent of an airliner taking off vs. a ride in a Marine Corps F/A-18 fighter jet, you can’t argue with the end result of the S&P 500 over the past 3 years.

S&P 500 vs Net New Highs 2010 2012 resized 600

Earnings reports continued last week and the earnings beat rate is now at 63.9% – a decent increase from the reading last week (59%). That means 64% of the companies that have reported have beat the estimates everyone had for those company’s earnings.

Of course along with earnings, companies are reporting revenues as well.  Here, we see beat rates at 60.8%, which is a huge pick up versus the revenue readings reported over the last two earnings seasons.

Unless your portfolio is made up of 100% AAPL, you are probably pretty happy with 2013 so far.  But remember this, there is a pretty good chance that we will see a short-term pull back in the market down the road.  Now that’s not to say that the rally is doomed, but there are some signs that the market is a little bit extended and the PROBABILITY of a pullback is higher now than 3 weeks ago.

Right now, 92% of stocks in the S&P 500 are currently above their 50-day moving averages.  For long-term investors, our advice remains the same as always – stick to the plan.  In order to be right on a trade right now, you have to guess correctly twice – when to sell and when to buy back in.  That’s hard to do, but investors with a plan don’t have to worry about guessing right twice and they should benefit from that since they stay in the market.

But for investors who have recently sold a business or come into bonuses or other big lumps of cash, you may be well suited to only invest a small portion of that cash right now.

Please call or email with questions.

IMPORTANT NOTE: Due to industry regulations, comments are not permitted on this blog. If you would like to contact the author, please email us at info@monumentwm.com.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Monument Advisory Group, LLC, a registered investment advisor.  Monument Advisory Group, LLC, and Monument Wealth Management are separate entities from LPL Financial.

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. photo

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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