Why the NASDAQ Blasting by the
Dow Jones Is Another Positive Signal

By

financial crisisThe Dow Jones Industrial Average has really done a good job of recovering from the subprime mortgage meltdown low set in March 2009. During the financial crisis, the Dow Jones was at a level not seen since the spring of 1997 and it took 10 years for the index to break 13,000. Since the March low in 2009, it’s taken the Dow Jones only three years to accomplish the same thing. Looking back, it was one of the best trades going if you had the guts to buy into the fear. Buying around the stock market low in early 2009, you would have doubled your money, while owning blue-chip companies that pay dividends. Hindsight is always a luxury.

The Dow Jones Transportation Average is diverging, but it’s done so before on lots of occasions. Oil prices have been trending higher since the beginning of February and the Transports, as a group, were due for a correction. I don’t want to see this divergence last much longer, as this would be quite a bearish signal for the broader stock market. With the upwardly revised fourth-quarter gross domestic product (GDP) number showing decent strength, I find it hard to imagine that railroad and trucking stocks won’t keep doing well.

The big-cap companies that make up the Dow Jones Industrial Average have only recently been usurped by the performance of the NASDAQ. Since the beginning of February, large-cap technology has beaten the Dow Jones and corporate earnings within the sector have been surprising. (See Fourth-quarter Earnings: Taking the Market’s Pulse.) This is a positive signal for the rest of the stock market. You can’t really have a bull market without participation from the technology sector.

There are two big questions now. Will this year’s early success from the stock market continue? Will it last throughout the year and going into 2013? I don’t know the answers to these questions, but I do know that there are enough data to support the bulls in the short term, and the bears later on. The stock market is due for a correction and it’s likely that we’ll get one. But, it is an election year and the Federal Reserve is on board (for better or for worse) to keep pumping money into the system. With unprecedented interest rate stability, I wouldn’t be surprised at all if the Dow Jones got back up to its all-time high of around 14,000.

There is no way to figure how the stock market will unfold in 2013. The structural problems in mature economies (mostly related to sovereign debt) are not being fixed—only sugarcoated. This decade will be an age of austerity, so economic growth rates should be lower than in recent history. From my perspective, all bets are off for the stock market going into 2013. I’m bullish on the Dow Jones this year and I like those dividends. The stock market is close to a correction and we’ll get one. For new investors, this will be a buying opportunity.

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About the Author, Browse Mitchell Clark's Articles

Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »

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