The NASDAQ Composite index sold off significantly in January to around 4,000. Then it recovered to its current level at 4,300, which is a pretty substantial move.
For a number of months now, the NASDAQ has been outperforming both the S&P 500 and Dow Jones Industrial Average. This relative outperformance continues to be a positive overall sign regarding sentiment.
I don’t really expect much from stocks this year, although the prospect of rising dividends still remains very good in the bottom half. 2013’s stock market performance was so exceptional and so substantial, especially among blue chips, that it’s time for earnings to catch up with share prices.
Not to be excluded, the performance of the Russell 2000 index has also been relatively strong compared to larger-caps. But this index still can’t quite keep up to the outperformance of the NASDAQ.
Stock market leadership from large-cap technology stocks is always a good thing. And a lot of it has been from older brand-name companies, the kind of former fast-growing stocks that are now almost income plays.
Oracle Corporation (ORCL) has been on the comeback trail after several quarters of disappointing results. This position has been treading water since the beginning of 2011, and its recent breakout on the stock market is not immaterial. The company’s five-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Following a similar trading pattern over the last several years, Microsoft Corporation (MSFT) has recently been strong. The stock is up $10.00 a share over the last 12 months, and Wall Street earnings estimates have been going up across the board for this fiscal year and next.
And a big surprise performance has come from Hewlett-Packard Company (HPQ), which is up almost $10.00 a share since last October.
Biotechnology stocks, as evidenced by the NASDAQ Biotechnology index, continue to be this market’s hottest sector, but strength in large-cap technology is a classic signal. The bull market in stocks seems to have more legs.
If there’s been one stock market indicator that’s been taking a bit of a break—a well-deserved break, mind you—it’s in the Dow Jones transportation stocks. This index has been running strong since December 2012 and is finally experiencing price consolidation.
Price strength among transportation stocks is always a strong indicator for the broader market. The fact that this index is now underperforming slightly is not worrisome; it’s just suggesting that the bull market is broadening out.
I continue to be amazed by the resilience of the stock market and the countless names that are trading right at their all-time record-highs. And stocks haven’t really experienced a material price correction; it’s been consolidation instead.
In terms of investment risk, biotechnology stocks illustrate this market’s speculative fervor. (See “Can the Rally in Biotechs Keep Its Momentum?”) A breakdown in the Russell 2000 would be significant and is always worth keeping tabs on.
It has been a choppy beginning to 2014, but investor sentiment and monetary fundamentals remain strong enough to carry stocks higher. Given current information, I suspect this year’s capital gains will be weighted to the fourth quarter.