Market Looks Headed to New Highs Despite Uncertainty

by Sam Collins | September 17, 2013 2:05 am

Stocks leapt on Monday’s opening on the news that Larry Summers had withdrawn his name for consideration as chairman of the Federal Reserve. He was generally considered to be a “hawk” who favored cutting back on the Fed’s monthly bond purchases. 

But data feed problems with stock options caused a halt in trading in the afternoon, and stocks drifted lower, frittering away some of the opening gains

At the close, the Dow Jones Industrial Average was up 119 points to 15,495, the S&P 500 rose 10 points to 1,698, and the Nasdaq fell 4 points to 3,718. The NYSE traded 654 million shares and the Nasdaq crossed 366 million. On the Big Board, advancers exceeded decliners by over 2-to-1, and on the Nasdaq, advancers were ahead by 1.2-to-1.

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Despite both domestic and foreign uncertainties, the CBOE Volatility Index (VIX) indicates that investors are complacent, i.e., expecting prices to maintain their upward momentum. 

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The public’s complacency is difficult to explain in light of so many uncertainties. Buyers are supposed to abhor uncertainty. Yet, even as the S&P 500 approaches its high of 1,710, it is picking up momentum and even gapped up on Monday’s opening. 

Conclusion: Investors are flush with cash and looking for an excuse to buy. Stocks even gained in the face of what appeared at first to be another terrorist attack. 

Now the S&P 500 looks to be headed to a new high, while the NYSE Composite — a very broad-based index — hit a new five-year high. And the small-cap and mid-cap stocks are again taking the lead.

Mary Lisanti, portfolio manager of the Adams Harkness Small Cap Growth Fund, has an answer as to why the small caps dominate and was quoted by Jeffrey Saut of Raymond James: “There is an enormous amount of innovation occurring in the small capitalization universe of stocks.”

Lisanti identifies five “demand drivers” in the United States: the return of the U.S. household foundation, a new American Industrial Renaissance, the second generation of biotechnology, cloud-based information services and the American oil shale play.

I’ve been talking about much of this for months, and her conclusions point to those industry groups that I think should lead, especially cloud stocks, oil shale plays and biotechs. For the remainder of the year, I will mainly focus on the beneficiaries of these trends.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[2].

For a list of this week’s economic reports due out, click here[3].

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