There is no denying the power and spirit of the relentless upward drive in stock prices scored over the last several quarters. Although unaccompanied by any noteworthy climb in daily turnover --- 200 Day Moiving Average Volume on both NYSE and NASDAQ are essentially stagnant --- all popularly followed Indexes and Averages are not only 25-35% above 52-week lows but rest 12-18% over 22-Day moving averages. Another seminal feature of the bull market has been its remarkable breadth of participation: through May 15 all 10 Industry Groups reported out by Standard and Poor's are higher, led by Consumers and Financials around 20%, while just under 8.5% is the neighborhood presently occupied by Materials and Technology. This stands in marked contrast to last year (to cite one example of many) over which a 13.4% overall score was weighed down by an absolute decline in Utilities and only a nugatory pickup in the Energy Group.
The contention is that the current Bull will soon have exhausted its energy supply. The advance has been delivered courtesy of an expanding multiple, which is unlikely to be further stretched and which to date has been joined neither by Revenues nor Earnings.
Consider just the S&P 500, which launched into the current calendar year at 1426. Then consensus calls for 2013 Operating Earnings were centered on either side of $108, less than 3% below today's estimate. Thus from a New Year's Day P/E on 2013 Earnings of 13.2 markets today rumble along to a tune of 15 Times. To be certain, next year's Earnings are now seen as climbing 11%, which if eventually the case shaves the multiple at today's prices back under 14 Times. As the Yield on 10-Year Treasury Notes holds resolutely below 2% many will doubtless argue --- and wager --- that common stock prices are not especially rich. Should 2014 fall in line with today's hopes they will be right, but it seems to me that, all things considered, a jaundiced view of that estimate is warranted.
Several other sources have recently commented on First-Quarter 2013 company results trained not so much on Earnings but on Revenues and Margins. Each has flattened out from their respective spirited lift coming off the 2009 trough. Cost and Expense controls are fine and no doubt worthily command management focus, but they are rubber bands having finite stretch points. Unless global business trends are enough to ring up the registers, the top line earnings results will miss targets. It does seem as though ample scope exists to question today's GDP estimates, here and abroad.
In each of the last three calendar years stock prices hit their peaks in April before undergoing retreats of various dimensions, prompting a slight calendar revision of the familiar "Sell in May" adage. This time around history could well revert. While premature to look for stock price roll backs of 15-20% it is by no means imprudent to plan for at best stagnation, at worst a period ahead which, will be looked back on as a Bear Market.