HOW YOU SEE IT, DEPENDS ON WHERE YOU SIT
Okay, I am dating myself on the Will Robinson metaphor — more on that warning sign later. The DOW now sits at 14,514 (record territory) and up 10.76% YTD, the S&P at 1560.7 (1565 is the all-time high close), up 9.43% YTD, and the NASDAQ at 3249 and up 7.6%. The DOW & S&P have risen 8% or higher in the first quarter of a year, twelve other times since 1950. When that happened, in 100% of the cases/time, the DOW ended the year with an average gain in excess of 10%. Here is a sampling of 6 of those twelve times:
2012 Qtr. 1 8.14% 7.26%
1998 Qtr. 1 11.27% 16.1%
1996 Qtr. 1 9.19% 26.01%
1995 Qtr. 1 8.43% 33.45%
1991 Qtr. 1 10.64% 20.28%
1987 Qtr. 1 21.61% 2.31%
In the immediate short-term, most of the smart money on the street believes we are overbought, overstretched, and overdue for a pause and/or correction. Former Fed. Chairman Alan Greenspan was on CNBC Friday professing that the last adjective or metaphor he would use to describe this market would be irrational exuberance. Like Goldman Sachs’s Abbey Joseph Cohen, Mr. Greenspan said that stocks are fairly valued and have more room to run. Then, there was actress Mila Kunis, (she stared in the comedy Ted last year) who publicly said she had been conservative in her investing approach; but, was starting to buy stocks. Both Mr. Greenspan’s and Ms. Kunis’s statements led to the amusing Barron’s title in this weekend’s edition, “Bad Omens: Mila and the Maestro,” by Randall Forsyth. This kind of talk gets traders nervous that there is too much euphoria — and, that we’ve come too far, too fast. This may well be a sell in April and go away till the fall kind of year. It is usually sell in May and go away.
First quarter earnings and 2nd quarter outlooks — which begin in April — will be crucial for the continued movement upward. Other signs of “irrational exuberance? Bullish sentiment has been steadily growing and according to a recent poll by Investors Intelligence the number of “bulls” on the street increased sharply to 50% last week from 44.2%, while outright bears fell to 18.8% from 21% — their largest weekly drop in 10 months. More worrisome, the spread between those bullish and those bearish surged last week from 23.1% to 31.2%. Anything 30 or above puts us in “dangerous territory” according to Mr. Forsyth. He added that this kind of spread preceded last year’s healthy correction. Be careful. Credit Suisse on Friday raised its target on London’s FTSE from 6600 to 7000 and their 2013 S&P target to 1640 from their previous forecast of 1550. Raging Bull has a year-end target on the S&P of 1673.
I think we could get to 1700 – 1750 by year’s end — all things being equal and no Black Swan event/s.
This week we get the two-day Federal Open Market Committee Meeting (FOMC) on Tuesday and Wednesday (Mar. 20), concluding with a news conference with Fed Chairman Bernanke at 2pm Wednesday afternoon. No change in language is anticipated and traders will look carefully for any hints about the Fed’s “exit strategy,” from QE and bond buying. Mr. Bernanke and Ms. Janet Yellen, the favorite to succeed Mr. Bernanke in Jan. 2014 have said, “substantial improvement in the outlook for the labor market (defined as 6.5% unemployment),” will be the key for the Central Bank to begin to phase out/exit QE. Other potential market moving events include the POTUS’s trip to Israel, the political turmoil in Italy and economic woes in the Eurozone and of course — “Mini-Me” in North Korea. Let me know what you think. V/R, R.C. Porter.