This market is definitely looking tired after such a strong run since mid-October.
The performance of transportation stocks has been noticeable this year. The Dow Jones Transportation Average has actually outperformed the NASDAQ Composite year-to-date. In my mind, when there’s leadership from this group, it’s a compelling, traditional bull market indicator. Countless component companies are pushing record highs.
Equally as impressive is the performance of the Russell 2000 index, which has pretty much mimicked the NASDAQ Composite over the last two years.
A divergence became apparent in the beginning of July, as the Dow Jones Industrial Average began underperforming the other indices. It’s as if investors upped their risk tolerance, willing to bet on more risky equity assets as they felt more comfortable being bullish on a stock market that’s already gone up.
Over the last 12 months, the Dow Jones Transportation Average has been the leading index (excluding biotechnology stocks, which aren’t comparable). While outperforming the Russell 2000 by a slim margin and the Dow Jones Industrial quite significantly, I think the Dow Jones Transportation Average remains the leading index going into 2014 and a great indicator for the broader market.
Among the railroad stocks that are included in the Dow Jones Transportation Average, Union Pacific Corporation (UNP) bounced back nicely higher over the last five weeks after experiencing a lasting price consolidation the past six months. It will be interesting to see if the stock can hold above its all-time record-high of $165.18. Doing so will be meaningful.
CSX Corporation (CSX) is also a component of the Dow Jones Transportation Average, and it, too, seems to have broken out of its price consolidation. Earnings estimates for this railroad company have gone up slightly for this fiscal year and next.
Also breaking out … Read More
It’s hard to believe we are nearing the end of another year. It seems as though the move into 2013 was just yesterday. I was bullish at the start of the year, but I was not expecting the kind of stock market advances we have seen with the NASDAQ and Russell 2000 up more than 30% and the S&P 500 nearing that level with multiple record-highs.
Recently, I wrote about the need to ride the current market higher, as the signs point to more upside moves ahead. (Read “Why Stocks Likely to Head Higher into the New Year.”) But at the same time, I remain nervous about the vulnerability of the stock market.
The soft results from what was pumped up as a killer Black Friday failed to materialize, as sales on the Thanksgiving weekend fell 2.7% year-over-year, according to the National Retail Federation (NRF). The NRF did estimate sales during the next few weeks prior to Christmas could rise 3.9%, but while it may pan out, it will only do so because of heavy discounting to clear inventory.
What continues to linger on my mind is the fact that we have yet to see a correction of 10% or more during this four-year bull market, which began in March 2009. This makes me nervous.
Robert Shiller, who was one of three Americans who just won the 2013 Nobel prize for economics, believes there is a bubble in the U.S. stock market, especially given the run-up in stocks in spite of what has been a fragile economic recovery. (Source: Clinch, M., “Nobel Prize winner warns of US stock market bubble,” CNBC, December 2, 2013.)
While I have also been nervous, saying the stock market is vulnerable to a correction, I continue to advise investors ride the gains but take some profits off the table.
The reality is that the climate of easy money pushed by the Federal Reserve has created this stock market bubble. The Fed should be looking at reining in its monthly bond buying. For instance, the Fed should shave $5.0–$10.0 billion off the top … Read More
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