Strong Leadership From Large-caps Bodes Well for the Broader Market

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

The DOW is inching its way towards 11,000 again and the leadership is coming from the technology sector. This is a very good sign for the stock market.

Not surprisingly, large-cap stocks are looking good right now because they have all the power — that is to mean the pricing and cost power to keep earnings growing. There are all kinds of companies leading the market now. Intel is doing great in this market. So are Microsoft, Oracle and Apple. Clearly, the technology sector will outperform the broader market this year and this bodes well for investor sentiment, particularly among institutional
investors.

In the consumer goods sector, PepsiCo stands out as a real outperformer in this market. The stock just hit a new 52-week high and the company announced an increase to its dividend, a new share buyback program and confirmation of earnings growth over the next three years. In my mind, PepsiCo stands out as a leader because it has so many different business lines that are directly related to consumer spending. Add in a strong management team with tight costs control and you have the makings of a real benchmark stock to follow.

Other big companies have really seen their stock prices take off lately. Big-name companies like DuPont, McDonald’s, United Technologies and Procter & Gamble are all breaking through their 52-week highs and this is a bullish sign for the broader market. Pull up one-year stock charts on these companies and you’ll be astounded
by the returns they’ve been generating. And, don’t forget that their stock market performance is not the whole story — these companies also pay substantial dividends to shareholders.

I still think that investment risk remains high for individual
investors, but, then again, it’s always high when dealing with equity securities. Stocks are risky assets and, in the investment business, timing is absolutely everything. Don’t ever let anyone convince you otherwise.

With strong leadership from large-cap companies, I think it’s reasonable to expect the DOW to break through the 11,000 level fairly easily. There’s a lot of talk among Wall Street analysts about big technology companies reporting strong first-quarter earnings and, if this happens, sentiment should improve across the board.

Time is moving quickly and we’re almost at the end of the first quarter. No doubt, the stock market will lead the economy out of recession. It always does.