S&P Has Made Tremendous Gains: On Its Way To Recovery

The S&P 500 rose 95 percent from its low in March 2009 through yesterday as corporate earnings beat expectations, the Federal Reserve bought Treasuries to stimulate growth and the economy recovered from the worst recession since the Great Depression. U.S. gross domestic product growth quickened to 3.2 percent in the fourth quarter of last year from 2.6 percent in the third, the government reported on Jan. 28.

A Domino Affect

A very small tick up in the economy has a three-to-four times tickup in revenues and even more into earnings,” Golub said on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene, because sales at technology and industrial companies, and consumer companies reliant on Americans’ discretionary spending, are correlated with economic growth. “Investors tend to underestimate how big that’s going to be for corporate profits” when economic reports beat estimates.

Stock Market Gains

As the economy recovers, stock-market gains are likely to be led by the cyclical industries, while industries less correlated with growth such as utilities, telecom and consumer staples will lag behind them, Golub said.

Stock Prices Are Attractive

“Despite the recent gains, stock prices are still attractive on a relative basis,” said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut. “We’re in the phase of the cycle that suggests stock prices hold better value than other asset classes.”

Small Stocks

After last year’s stellar run for small stocks, as measured by the Russell 2000 small cap index, they’re lagging so far in 2010. The Russell 2000 up roughly 3.5% since then end of 2010. Meanwhile the S&P 500 is up a tidy 5.3%. Not a yawning gap but one worth watching.


Innovative Measures

“Innovative measures of risks associated with market events, such as the VIX and now the SKEW, provide investors with powerful tools for understanding equity and derivative markets,” said Alexander Matturri, Executive Managing Director at S&P Indices. “The fact that these measures are based on the S&P 500 is recognition of the Index’s role in the U.S. equity markets.

Source: http://dailynewspulse.com