The Wall Street Journal began its weekend edition commentary on Friday’s market this way: “The Dow Jones Industrial Average hit a new 2009 high Friday on the two-year anniversary of its record [high] close, as investors remained optimistic about coming third-quarter earnings.”
The story also points out that even though the Dow is 51% above its March bear market low, it is still more than 30% lower than the record close of 14,164.53 made on Oct. 9, 2007. More on that in the “What the Markets Are Saying” segment.
Technology stocks led a broad rally Friday, as IBM (IBM) and Intel (INTC) drove the Dow Jones Industrial Average (DJI) to a new annual high. The buying in IBM was triggered by a favorable report from Barclay’s technology analyst and the stock rose 2.98%.
Earlier in the week, Dow member Alcoa (AA) reported better-than-expected earnings. Those earnings propelled Alcoa to an 11% gain for the week and gave investors confidence to close out the week with a gain of 4%.
But traders are concerned about the public’s lack of acceptance of the bull market. Again on Friday, despite the new high for the year in the Dow, volume was extremely low and has been for a month. It was pointed out last week that most of the public is still stuck in zero-yielding money market funds and bonds while stocks have been soaring.
In addition to IBM and Intel making big gains, NCR Corp. (NCR) jumped 8% after an unannounced change in management, and Cree (CREE) rose 5.4% when JPMorgan Chase (JPM) started coverage of the stock with an “overweight” rating.
At the close, the Dow gained 78 points to 9,865, the S&P 500 (SPX) was up 6 points to 1,071, and the Nasdaq (NASD) rose 15 points to 2,139.
The NYSE traded 990 million shares with advancers over decliners by 3-to-2. On the Nasdaq, advancers were ahead by just less than 2-to-1 with volume of 581 million shares.
November crude oil rose 8 cents to $71.77 a barrel, and the Energy Select Sector SPDR (XLE) fell a nickel to $56.16.
December gold fell $7.70 an ounce to $1,048.60, and the PHLX Gold/Silver Index (XAU) lost 84 cents, closing at $176.38.
For the week, the Dow rose 4%, and the S&P 500 and the Nasdaq both rose 4.5%.
What the Markets Are Saying
Let’s get back to the comment by the Wall Street Journal this weekend that the market is still more than 30% lower than the record close of 14,164.53 made on Oct. 9, 2007. Yes, and believe it or not, it and its companion stock indices are “still lower than the closing price of each of the major indices 10 years ago.”
So, are stocks a poor investment?
>
I’ll let Professor Jeremy Siegel of the Wharton School of the University of Pennsylvania answer that from a Financial Times article dated Oct. 6.
“A look at history shows that recent experience is not uncommon, and excellent returns are available to those who survive such rough patches. Since 1871, the three worst 10-year returns for stocks have ended in the years 1974, 1920 and 1978. These were followed, respectively, by real, after-inflation stock returns of more than 8%, 13%, and 9% over the next 10 years. In fact, for the 13 10-year periods of negative returns stocks have suffered since 1871, the next 10 years gave investors real returns that averaged over 10% per year. This return has far exceeded the average 6.66% real return in all 10-year periods, and is twice the return offered by long-term government bonds.”
In other words, hang in there for the next 10 years since a historical study of stock returns shows no period in which stocks were down over 20 years.
But I would also add that the fact that an unsupervised portfolio of stocks, i.e., indices, are down over a decade dispels the once widely held theory that the best investment strategy is to own an index fund and forget all else.
These are treacherous times and they demand the best analysis and game plan. If you are not doing well, then seek the help of an investment professional.
And one other fact. For the long run, buy stocks with dividends since there are many studies that show that dividend-paying stocks outperform non-dividend payers by a wide margin when dividends are reinvested.
The best is yet to come.
Today’s Trading Landscape
Earnings to be reported include: Charles Schwab (SCHW), Fastenal Co. (FAST), JB Hunt Transport Services (JBHT), Koninklijke Philips Electronics NV (PHG), Park National Corp. (PRK) and Sun Bancorp (SNBC).
There are no economic reports today because of the Columbus Day holiday.
The old ways of investing don’t work anymore. But trading options founded on scientific principle can and does work in volatile times like these. Learn how to leverage the power of technical analysis to identify the short window when a trade is set to go straight up or down. Get your FREE copy here!
