Excertps: The Dow Jones Industrial Average had its biggest rally in a month, on optimism earnings are recovering after McDonald's and Procter & Gamble reported quarterly profits that beat analyst estimates. The DJIA gained 165 points (+2.0%) to 8471, its largest advance since April 2. The S&P 500 Index rose 16 points (+1.8%) to 914. The Nasdaq added 27 points (+1.9%) to 1462. Also providing a psychological boost was a drop in oil prices and a 0.1% rise in March Consumer Confidence, the first positive number in the index in three months. The long-expected $1.4 billion global settlement with investment banks over conflicts of interest involving research reports, initial public offerings and other issues from the bull market may be providing a psychological lift as well. Bonds eased as money flowed into equities.
Brian Belski, fundamental market strategist at U.S. Bancorp Piper Jaffray, said he's becoming more cautious as the stock market's rally "matures and elongates." "While we are not dismissing the recent positive performance as unwarranted or unjust, we do believe that investors should consider scaling back on those positions that have provided strong gains over the past three to four months in particular," the strategist told investors in a research note. Still, Belski does believe that the broader stock market is in the preliminary stages of building a long-term trading range and bottom.
Kevin Marder, chief market strategist at Ladenburg Thalmann Asset Management, said he continues to be impressed with the major averages. He notes that Nasdaq volume has risen on up days and diminished on down days over the past three weeks, which he views as an important positive. Marder believes the next sustainable advance will be "a more labored affair than the numerous intermediate-term advances of the '90s." He feels that sideways action in the averages will take place due to the tremendous amount of overhead supply that exists in the form of holders who are sitting underwater on their positions.
Comment . . . As far as the markets are concerned, it is becoming abundantly clear in recent months that despite a weak global economy, high and volatile oil prices, the war and SARS; there has also been a decisive decline in investor risk aversion. This can be seen in almost every asset class and sentiment metric. Corporate spreads have broadly tightened by more than 60 basis points so far this year, and the high-yield sector has been the top-performer in the bond market. Within the broad recovery in the equity market itself, the cyclicals are leading the way (note that consumer discretionary has outperformed the S&P by 550 bps year-to-date). The CRB successfully tested and then bounced off its 200-day moving average of 230. Adding to the pro-risk thrust, the cyclically-sensitive currencies have been on fire this year (the A$ is up 10% against the greenback year-to-date). And these moves are also evident in global investment shifts, with Latin American markets emerging as global leaders. Meanwhile, fear barometers like the VIX, at 23.49, is at its lowest level since June/02 and the VXN (measures volatility of the 100 biggest NASDAQ stocks) is at a mere 33.13, its lowest since December ‘98 when the bull market was in full swing.