If You Build It, They Will Come.

Well, I am referring to the general equity markets and not Healthcare.gov.  Like the gentle reminder that Kathleen Sebelius was given in Tennessee on Friday (pic courtesy of The Daily News in Memphis), I’d like to remind investors about some stats regarding the equity markets over the past six months and thoughts about the remaining two.

I especially like the look on the face of the woman in red off to the right – I cannot tell if it is a look of horror or what, but she has a certain pucker factor look going on.  Maybe she liquidated her equity holdings in December of 2012 to hedge against the Fiscal Cliff and just saw on a TV screen in the background how much the Dow Jones Industrial Average (DJIA), the Standard
and Poor’s 500 (S&P 500) and the Russell 2000 indices are all up year-to-date (YTD).

As we head into the final two months of the year, we do so with substantial gains year-to-date on all three indices we cover on a weekly basis. By the last trading day in October, the DJIA was up over 18%, the S&P 500 was up over 23% and the Russell 2000 was up over 29% (all YTD returns).

The DJIA is Lagging the Other Indices – Especially Over the Past Six Months.

The DJIA is a price-weighted index, meaning the stocks that have the highest price per share carry the most weight.  As such, one has to look no further than to Big Blue, IBM. With a price per share of around $180, it carries a lot of weight in the DJIA.  With IBM down almost -5% YTD (10/29/13) and down over -10% for the previous six months (4/30/13 – 10/29/13), that pretty much accounts for a lot of the reason the DJIA is not keeping up with the S&P 500 and the NASDAQ Composite indices.  The disparity between the indices is really seen over the past six months, which is traditionally the weaker part of the market. The periods of November to April are considered the stronger part (per the yearly Stock Trader’s Almanac).  The DJIA is up over 5.5% for the period of May to October this year.  Not shabby, but the S&P 500 and the NASDAQ are both up 10.9% and 18.7% (WOW!!!) respectively.

Thanks Big Blue.

Economy & Earnings Season

The ISM manufacturing report came out last week and the reading came in at 56.4 vs. the
expected 55.0.  We have not seen a reading of this level since August of 2011.  It is also the fifth time in a row that the reading has exceeded expectation.

Last time that happened?  2009.

We love Bespoke Investment Group’s Ford F-150 Truck Sales graph they put out every month.  Frequent readers know we have reported on this in the past. Basically, it’s a good sign when the sales are going up because most people buying F-150s are doing so as a small business.  The below chart shows that 2013 has surpassed 2007 in YTD (through October) sales.

Nice.

Now On To Earnings. 

The ratio of companies posting negative guidance against the companies posting positive guidance is currently at -5.0% and if that stays, it will be the ninth quarter in a row of a negative spread for this ratio.  We will be writing about it in upcoming blogs.

The percentage of companies beating their revenue estimate for the third quarter of 2013 currently sits at 52.6% (vs. 54.4% last week), which is a move in the wrong direction and still lower than the average of 60% since 2001.  The percentage of companies beating their earnings estimates stands at 61.5% (vs. 63.5% last week), which again is in the wrong direction is now 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, we have seen a nice steady quarter-over-quarter increase in earnings since the second quarter of 2012 so we hope this picks back up.

Please call or email with questions.
Investment advice offered through Monument Advisory Group, LLC a Registered Investment Advisor (RIA).

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.