The great monetary expansion is still alive and well and the effect on equity securities continues to be profound.
But what I find striking about the stock market’s continued advancement is that it’s blue chips that are pushing through to new record highs.
Speculative fervor in several sectors has diminished, but hasn’t completely disappeared. But it’s the big brand-name companies—a lot of which pay dividends—that just keep on trucking as institutional investors buy earnings safety and outlook reliability, and are betting on revenue and earnings acceleration going into 2015.
Union Pacific Corporation (UNP), a benchmark railroad stock, just hit another new record high on the stock market, breaking through the $100.00-per-share level. It was $35.00 a share this time in 2010.
And this from an old-economy, industrial enterprise that is probably not on many investors’ wish lists.
Amazon.com, Inc. (AMZN) broke down considerably at the beginning of the year when it was trading around $400.00 a share. It recently broke $300.00 a share, but has bounced back significantly and the position looks to be fighting hard.
And this is one of the speculative stocks on which investors booked their profits. This stock is on the comeback trail and so are Cisco Systems, Inc. (CSCO), The Priceline Group Inc. (PCLN), Oracle Corporation (ORCL), Apple Inc. (AAPL), and Google Inc. (GOOG).
The stock market has been digesting continued mediocrity in domestic economic data and slightly more positive numbers from China. Institutional investors are buying. I think that, in the absence of some kind of shock or new catalyst, the stock market can slowly keep grinding higher. It could very well turn out to be another good year.
A considerable number of Street analysts estimate that the U.S. economy will experience a modest acceleration from its current trend in the fourth quarter this year. If this does transpire, then it will be the icing on the cake for the stock market, which is already a leading indicator itself.
Both the Russell 2000 Index of small-cap stocks and the NASDAQ Composite are pulling out of their recent retrenchments. It’s a bit of a breakout among the stock market’s more speculative issues and the Dow Jones Transportation Average just sailed past 8,200 for a new record high.
Stock market metrics are improving, although trading volume is light. But this isn’t unusual for this time of year. Investor sentiment is holding steady.
Time after time these last several years, the stock market has surprised both in its inability to experience a material price correction and in the fervor with which institutional investors keep buying blue chips. (See “Strong Corporate Earnings Worthy of a Sell-Off?”) This is a trend that I think will continue; it’s why I continue to favor existing winners, especially among blue chips, because that’s what big investors continue to want.
It’s reasonable for the stock market to experience meaningful corrections and price consolidations. But the market’s enthusiasm for itself is once again showing some life.
Given current sentiment and in the absence of a shock, stocks could keep ticking higher right into second-quarter earnings season.