The top three major U.S. stock market indices hit new highs on Thursday for the first time since 1999. The rise was driven by regurgitated OPEC supply freeze agreement chatter (remember that from February?) and better-than-expected but still soft results from Macy’s Inc (NYSE:M).
In the end, the Dow Jones Industrial Average gained 0.6%, the S&P 500 Index gained 0.5%, the Nasdaq Composite gained 0.5% and the Russell 2000 gained 0.5%. Meanwhile, Treasury bonds were weaker, the dollar was stronger, gold lost 0.1% and oil gained 4.3%.
Oil gained after Saudi’s oil minister said discussions with OPEC and non-OPEC officials next month could cover potential actions to stabilize prices. Never mind that inventories of both crude and gasoline are swollen or the Riyadh just cut Asian export prices and pumped a record 10.5 million barrels per day in July.
Macy’s stock gained 17.1% after reporting a second-quarter earnings per share beat, despite a 2.6% decline in comp-store sales. The company also announced it would be closing 100 stores. Kohl’s Corporation (NYSE:KSS) gained 16.2% on better-than-expected earnings despite a 1.8% drop in comp-store sales. Alibaba Group Holding Ltd (NYSE:BABA) gained 5.1% on a top- and bottom-line beat. Shake Shack Inc (NYSE:SHAK) dropped 6.2% on a smaller-than-expected same-store sales increase of 4.5%.
Energy stocks led the way with a 1.3% gain while consumer staples were the laggards, down 0.1%.
After the close, Nordstrom, Inc. (NYSE:JWN) surged 11.4% after reporting better-than-expected earnings of 67 cents per share (vs. 55 cents expected) despite a 1.2% drop in same-store sales.
It’s all about momentum and true belief that the central bankers will step in and bolster financial markets should anything go wrong.
Because the fundamentals continue to stink. The corporate earnings recession is expected to go into its sixth consecutive quarter. Equity market valuation metrics have rarely been higher. Corporate debt levels, used to fund buybacks and dividends, have never been higher. We’re in a seasonally weak period of the year, historically.
And professionals of all types are selling into the rally: From individual investors like Carl Icahn and George Soros to corporate insiders like Jeff Bezos to Wall Street brokerages like Goldman Sachs, JPMorgan, and Barclays Capital (all of which have recently warned of stocks looking dangerous at these levels).
Above all, the bullish trade is simply getting way too crowded. Consider that there is a record high net speculative Dow futures and options contracts outstanding, as shown above. If you think stocks are a good deal here, consider this: According to Gluskin Sheff strategist David Rosenberg, the market is de facto pricing in a 25% earnings bounce in the coming year, something that history says is a 1-in-10 event.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
