Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool on any article or visit www.djreprints.com
So we're back to this, are we, fighting neither the Fed nor the tape, using midday weakness in stocks to bid them higher into the close, lifting the indexes gently but persistently to a nifty start to the year and generally feeling pretty content about it?
This certainly has been the story of Stock Market 2012, at least until Friday's little scattering of the sparrows, a not-even-1% selloff in front of Sunday's hoped-for-but-not-guaranteed approval by the Greek parliament of the austerity deal officials have struck with their European paymasters.
While nothing too dramatic, Friday's drop was merely a collective expression that one need not be too exposed to risky assets into a weekend in which a jumble of restive Greek political factions are being asked to ratify a program of truly punishing financial measures on their citizens.
Aside from that, the market's field position and the attendant investor-sentiment picture look quite as they did a year ago, a moment that preceded a pretty swift 6.5% reversal in the Standard & Poor's 500 index, a drop aided in its final stages by the shock of the Japan tsunami in March. The market then bounced to a marginal new high in late April before the European mess and U.S. recession watch spoiled the summer.
At the equivalent point last year, the S&P 500, now at 1342.64, closed at 1343, and because 2010 and 2011 ended with the index at identical levels, the year-to-date rise has been almost equivalent, as has the trajectory of the healthy gain since the prior early October. Until Friday, the market had gone longer without a 1% down day than any period since the one that ended in mid-January 2011.
And check out the relevant gauges of investor attitudes. As can be seen in the Market Laboratory section, the Consensus Inc. bulls are at 72%; they were 71% a year ago. Market Vane is at 66% versus 67%. The American Association of Individual Investors poll, after a spike in optimism last week, sits at 51.6% bulls and 20.2% bears, compared to 49.4% and 26.9% a year ago. Typically, markets don't accommodate the inclinations of such a lopsided majority in the very near term, anyway.
This would be a more persuasive writ of indictment against the durability of this rally if the resemblance of this year to last were not so widely acknowledged.
Credit Suisse strategist Andrew Garthwaite remarked last week that the years look "eerily similar" so far. He adds, though, that economic momentum looks somewhat better today, and of course the European Central Bank has gone some distance toward capitulating to market tantrums demanding money-printing.
Rebecca Patterson, strategist for JPMorgan Asset Management, warns: "Remember, last January and February we felt great about the world too, and look where the rest of the year took us…Sentiment remains fragile enough that if we had one shock, profit-taking on this rally could quickly set in."
And, not to be outdone, Yahoo Finance Friday was running, as its top story, "Time to Prepare for a Market Sell-Off?"
Ajay Kapur, a Deutsche bank strategist, maintains a "Risk-Management Checklist" of many global market and economic indicators to determine tactical positioning. Right now, it is almost entirely positive aside from the frothy sentiment measures. In past periods with a similar setup, forward market returns have been OK but below average in the shorter term. He says, "For bulls, buying cheap protection is important," in the form of put options.
This sounds unassailably prudent as a near-term precaution. And yet, there remains a nagging sense that in the bigger picture, dramatically higher stock prices this year, led by volatile growth stocks, would be the bigger surprise to most than a choppy, anxious, muddle-through year.
Bespoke Investment Group noted that every day this year, analyst stock downgrades have exceeded upgrades. Doug Ramsey at Leuthold Group fairly points out that Barron's (including this column, perhaps) and broader investor focus have been skewed to "safe stocks" and dividends. Mainly this is posed as an alternative to bonds rather than a means to outpace a strong stock market, but it belies the idea that greed has intoxicated the masses and the media.
Years that follow flat, digestion periods such as we saw in 2011, and years featuring very strong Januarys such as this year, have tended to be unusually good, as we've noted here in recent weeks.
The evidence, then, points to a correction, but higher prices likely will follow. Absent one of those nasty shocks we've almost come to expect, the market can weather any near-term setback well.
E-mail: michael.santoli@barrons.com
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com
Strong quarterly results cheered investors but eye-popping valuations make it hard to like the stock. Options, instead, offer a surer path to profits.
by Richard C. Morais
Janine Racanelli, head of a think tank buried within J.P. Morgan Private Bank, lays out the coming tax shock and a smart counter move involving a Roth IRA conversion.
Low gas prices will hurt Devon, Chesapeake Energy and PetroQuest.
The maker of upscale jeans needs to expand operating margins.
Fortinet, Checkpoint Systems and Websense all gain from Cisco's weaknesses.
The maker of upscale apparel will gain from increased consumer spending.
Universal Health Services' shares were punished last year along with those of other hospital operators. But this stock has benefits the others don't.
Shares plunge after the daily deals company announces a surprise fourth-quarter loss.
The iPhone 4S launch has given Apple's phone line a huge boost.
The networking giant's new product orders slowed significantly.
Master limited partnerships are high-maintenance but worth the hassle.
Why plain folks just don't cotton to Congress. The market skids on Greece—again. What an analyst likes about Pfizer.
New exchange-traded funds just keep sprouting up. So -- when's enough enough?
The big money says steer clear of bonds, but no one's listening.
After a bout in bankruptcy and a spate of CEOs, the auto supplier is back on the road to prosperity, with a global plan, new products and a coherent vision.
Despite the setback, bears have to pay attention to the market's positive sentiment, receding fears about slow economic growth in the U.S. and predictions of doom for Europe.
The company has casinos in Las Vegas and Atlantic City, but none in gambling's hottest market, Macau. Why online poker won't save it.
Two legal decisions give substantial protection to mutual-fund ownership companies. So who's liable at the funds?
Prices have slid so much that bargains abound. But beware developers' hype, a veteran Sunshine State real-estate broker warns, especially in over-condoed areas like Miami.
A new management team is pursuing the same highly successful mid-cap strategy as they did under a previous boss. Why they like World Fuel Services and O'Reilly Automotive.
The "other" social networking company, a recent IPO, is effective in providing communication tools for employees, bosses and customers.
Intelligence consultant George Friedman rates the odds that Israel strikes Iran's nukes at one-in-four. But if it does, casualties could be heavy and $300-a-barrel oil is likely.
Hong Kong-based Value Partners' Cheah Cheng Hye says mainland P/Es aren't stretched. Some energy and housing Chinese companies look attractive.
Videogame vendor GameStop, park operator Six Flags and resort manager Wyndham boost payouts. So does 3M.
Ken Chenault, the longtime head of American Express, believes in challenging the status quo, messing with success and talking about integrity. Praise from Warren Buffett, and lessons for other CEOs.
Subscriber Content Read Preview
Subscriber Content Read Preview
Subscriber Content Read Preview
Read Full Article »