Monday, January 21, 2013

The Bull Market

The S&P 500 index closed at 1485.98 on Friday, up 119.6% since the start of the bull market. I’m still targeting 1565 before the middle of the year, matching the record high on October 9, 2007. That would be an increase of 5.3% from Friday's close. My yearend target is still 1665, which would put the index up 16.7% for the year following last year’s gain of 13.4%

Several other major stock market indexes have gone vertical in recent days to new record highs including the S&P 400 MidCaps (up 165.4% since March 9, 2009), S&P 600 SmallCaps (175.1), S&P 500 Transportation (161.3), and Russell 2000 (160.1). The bull may be getting old, but you have to respect the strength and breadth of its most recent charge.

The bull’s stamina has been based on performance-enhancing earnings. The forward earnings of the S&P 500, S&P 400, and S&P 600 all rose to fresh record highs during the week of January 17, and are up 80.7%, 85.8%, and 102.7%, respectively, since the week of May 7, 2009. Actual revenues and operating earnings stopped growing on a y/y basis during Q3-2012. However, I’m expecting that better global economic growth will boost both of them this year.

Stocks remain relatively cheap. Since the start of the bull market, valuations have been held down by fears of a double dip in the US, a hard landing in China, and a meltdown in Europe. If these concerns diminish this year, as I expect, there is room for higher multiples, especially for the S&P 500 (selling at 13.1 times forward earnings on Friday) as well as the S&P 400 (15.3) and the S&P 600 (15.9).

Today's Morning Briefing: Performance-Enhanced Bull.  (1) Paying respects to Rodney Dangerfield. (2) Could it be a secular bull? (3) It snorts and stampedes like a bull. (4) Earnings are better than steroids. (5) Retail investors should notice that stocks are cheaper than bonds. (6) Debt ceiling is latest postponed apocalypse. (7) More good news about Second Recovery and energy independence. (8) Those blinking Republicans. (9) Inglorious Gridlock. (10) “The Impossible” (+ +). (More for subscribers.)

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