A month or so ago, I discussed the statistical probability of a change of the bullish stock market trend during the coming months. The view at that time was clearly uncertain. The indices had plummeted during the last half of January until Feb. 3, a minus 5.76 percent drop for the S&P 500.
For that broad index and the Nasdaq, the low point has been erased by their reaching new high points. The S&P and the Nasdaq 100 were up by 1.56 and 2.53 respectively at Monday’s close. Remember that a bull market looks like the teeth of a saw tilted up. It will always be two or three steps upward and one or two down.
On the other hand, the Dow Jones 30 Industrials is still 1 to 2 percent below its Dec. 31 top. It fell 7.26 percent from year end through February’s first trading day. If it does not surpass its record high of 16,588 in the next few weeks, its uptrend will be in doubt. While those 30 giant stocks are important, the other two groups are better predictors these days in my opinion.
This is what I think is happening. Sunday was the fifth anniversary of the stock market recovery that began on March 9, 2009. A multitude of individual investors have never stuck more than a toe back into the equity waters during this entire time. Meanwhile professionals and big-money investors have made great profits.
Therefore whenever we see a pause or correction, more thousands of folks are buying in again, even if only cautiously. As soon as the most recent rebound began on Feb. 4, the rise was again dramatic and steady. My conclusion at this time is that any further correction will be measured and moderate. There are some sectors or industries that are becoming overheated, but a healthy rotation between sectors is also being evidenced.
One sign of strength has been that the fears of war in the Ukraine in the past few weeks have not had any marked negative effect on our stock indexes. At least the big money seems to be betting that the U.S. and Europe will not launch into WW III even if Russia completely stamps out the revolution for democracy. Since we have our hands full already and the administration is long on talk and short on follow-through, I think that is a safe bet.
(All statistics from Worden Brothers, Inc., TeleChart Service, 2014. Past performance is no guarantee of future results. This information is opinion and written for the general audience and not intended to be specific advice for anyone.)
Ron Finke is president of Stewardship Capital in Independence. Stewardship Capital is a registered investment adviser. Reach Finke at firstname.lastname@example.org.