The New S&P Bull Market

Stock prices took off on March 9, 2009 at precisely 15:00 hrs EDT, as investors and traders moved back into the hammered financial and technology sectors.

The S&P 500 index tallied up + 40% after hitting a 12-year closing low in March, helping all 10 S&P sectors advance in the Q-2.

The 50 stocks in the S&P 500 that did the worst in 2008 are the best performers in the first half of 2009, gaining an average 35%.

Much of the market rallied between March and May behind the POV that companies and the economy were not headed “under the bus.”

Thanks to the Spring Rally, the S&P 500 is now trading at about 14.8 times average estimated earnings -up from 12 at the beginning of March.

Now the focus looks like it is changing with earnings season just ahead, equity investors are focusing on stocks with strong fundamentals along with attractive valuations that can benefit from a rebound in demand by the end of this year.

Investors are looking for candidates like General Mills Inc (GIS). The cereal maker forecast better-than-expected earnings for this fiscal year, and it also said it saw "little" price increases for the period. General Mills' stock gained 3.9% to close at US$58.18 in trading last Wednesday on the NYSE.

Investors are looking for and willing to accept a pullback in here to get a chance to buy companies at more attractive valuations. That is part of the reason investors and pundits are anticipating a correction that has so far has not happened; no matter how hard they try, the Perma Bears are not able to talk the market down for long.

Savvy market players like diversified US manufacturers 3M Co (MMM) and Textron Inc (TXT), Rockwell Automation Inc (ROK), industrial conglomerate Ingersoll-Rand Co (IR) and a number of small and micro cap emerging companies like Archer Entertainment Media Communications (AEMC), Call Compliance (COPI), Get Fugu (GFGU), Hythiam (HYTM), Neah Power Solutions (NPWS) and NexHorizions (NXHZ) all of which are now headed North in this rally.

To capture a cyclical upswing, equity analysts at JP Morgan have recently gone "overweight" on the industrial and material sectors and are now "overweight" in all cyclical sectors, including consumer discretionary and technology where analysts are expecting cyclical sectors to experience the strongest earnings growth.

This is rotation, a clarifying signal that we are in a New Bull Market.

Comments

[Maxe Paul:]

Ok, my guess is you have been sailing into oblivion on that big gin palace in the picture, this is not a new bull market, it is a bear market rally, otherwise known as a "suckers rally".

The current rally is undergoing a correction which we expect to last for approx July, before heading for the 1050 level in the S&P and topping out, before recommencing the bear market trend.

So, thats whats happening on this planet, which planet where you referring to by the way?

Jul 06 08:36 AM

[Karl Denninger:]

Good luck with that.

I recommend having a look at NYSE Margin Debt and Credit Balances.

It makes clear what's going on here - the entire "rally" was fueled by margin debt. Credit balances SHOULD be rising as equity percentage goes up in a rising market. Its not.

Nor is this shorts getting run over - short interest is DROPPING.

So what is it?

It is people levering debt upon debt to drive the market higher.

We saw this with oil last year. It got to $150 on the same gambit and Goldman proudly proclaimed that it was going over $200.

What actually happened?

Got seatbelt?

Jul 06 08:49 AM

[dcb:]

this is why credit should not be cheap. and leverage needs to be drawn out of the system!!!. Just as the Fed wants relevering up. it is another disaster in the making.


On Jul 06 08:49 AM Karl Denninger wrote:

> Good luck with that.
>
> I recommend having a look at NYSE Margin Debt and Credit Balances.
>
>
> It makes clear what's going on here - the entire "rally" was fueled
> by margin debt. Credit balances SHOULD be rising as equity percentage
> goes up in a rising market. Its not.
>
> Nor is this shorts getting run over - short interest is DROPPING.
>
>
> So what is it?
>
> It is people levering debt upon debt to drive the market higher.
>
>
> We saw this with oil last year. It got to $150 on the same gambit
> and Goldman proudly proclaimed that it was going over $200.
>
> What actually happened?
>
> Got seatbelt?

Jul 06 09:18 AM

[Crude Oil T...:]

The bears are getting their steak dinner they have been waiting for. If we get below 880, then 872, watch out below. But the correction is clearly upon us.


crudeoiltrader.blogspo...

Jul 06 09:19 AM

[Alphameister:]

The bull market is more readily seen on a worldwide basis. The US bull is both less developed and less promising than those evident among emerging markets. The easy money has been made for this bull move in US stocks. It's likely to be a long, hard slog going forward, but I don't expect to see new lows in the foreseeable future.

Jul 06 09:29 AM

[topshelf:]

i'll leave a few pastes of the very little mention of thw whopping PE of the S&P 500 that's been bouncing around the 130 Mark, yes 130, not 13, unless someone/s has already priced in dollar decimalization---and this coming Q2 will make it Higher, since it knocks out Q2/08 from the TTM Earnings, pastes below:

After the earnings result for the quarter ending March 31, 2009 , the PE ratio is now even higher. The reason is the denominator E or earnings in the PE ratio is falling while ht price is rising. For these calculations the 919.14 closing price of the S&P 500 on May 29, 2009 is used.

With 99% of all S&P 500 companies reporting, the as reported earnings are for the March quarter is $7.61 according to Standard & Poor’s. As shown on the chart below the S&P 500 PE ratio has risen to 132 for the quarter ending March 2009. According to Standard & Poor’s estimates for the June and September 2009 quarters are 3,500 and -301 respectively. These two values reflect the serious losses incurred in December 2008 combined with the anemic earnings performance since then. I removed these numbers from the chart as they skewed the chart significantly.
======================...
Mogambo Guru last month:

And now somebody is worried that China would not trust the currency of such a bunch of socialistic, commie-think morons whose currency has been devalued by almost 97% since the Federal Reserve was given control of the money and banks in 1913? Hahaha!

But there is insanity everywhere, and to show stark evidence of an astonishing degree of absolute insanity, the price-to-earnings ratio of the S&P 500 is now, according to a table in Barron's, a ludicrous 122.45! Beyond belief! Hahahaha!

This preposterous P/E ratio is caused by the earnings of the companies in the S&P 500 index dropping to a miniscule $7.21 per share (down from the 2007 high of over $84 per share!) at the same time as there are so many complete morons willing to pay $882 a share! Hahaha! Morons!
===================
and the S&P Website itself:
S&P 500 Statistics
As of May 29, 2009

Total Market Value ($ Billion) 8,035
Mean Market Value ($ Million) 16,070
Median Market Value ($ Million) 6,490
Weighted Ave. Market Value ($ Million) 67,881
Largest Cos. Market Value ($ Million) 342,702
Smallest Cos. Market Value ($ Million) 458
Median Share Price ($) 28.00
P/E Ratio* 127.48 <<<<<&l...
Indicated Dividend Yield (%) 2.47
NM - Not Meaningful *Based on As Reported Earnings.


www2.standardandpoors....

Jul 06 01:16 PM

[dirtyharry:]

What about the nearly 1.5 million jobs lost in the last quarter? Might that have an effect on earnings?

"Now the focus looks like it is changing with earnings season just ahead, equity investors are focusing on stocks with strong fundamentals along with attractive valuations that can benefit from a rebound in demand by the end of this year."

Oh you mean like where Buffet would invest? Do you know at one point he was down 58% with all of his "value" ? It looks like the author can't even learn lessons that were taught within the last year. To call this a short-term memory problem is an understatement. If there's one thing anyone should remember, is that in 2008 when the markets declined, it didn't matter which value stocks you own. It didn't matter how much cash they had on hand or how profitable they were: They went DOWN, and they went DOWN HARD.

Besides the job losses (which are now accelerating again), we have prime mortgages beginning their collapse (increasing default rate), Option ARM mortgages beginning their resets, and a dollar that is in retreat which will raise the price of imported goods.

"This is rotation, a clarifying signal that we are in a New Bull Market."

This statement would be comical if not for the impending pain retiring baby boomers will be enduring via their declining 401k's.

Jul 06 02:51 PM

[TradingHelp...:]

You bears may well be right, but nothing is certain. There is still a wall of liquidity coming into the economy irrelevant of valuations, unemployment, etc. I admit there is a dominant bearish mood but it is possible we won't revisit March lows isn't it?

Jul 06 03:09 PM

[Fred Voetsch:]

"Thanks to the Spring Rally, the S&P 500 is now trading at about 14.8 times average estimated earnings -up from 12 at the beginning of March."


Once again we have another person blindly passing along estimated OPERATING EARNINGS as a number that has ANY significance when applied to the broad market. It does not and anyone who believes it does will get burned this year just as they did last year.

www2.standardandpoors....

"As Reported Earnings are essential if long periods of historical data are important."

Since we are talking about P/E ratios and we all understand P/E ratios mainly by their historical significance (Avergae of 15; market is overpriced at 20; market is underpriced at 10; bear market lows of under 10 and as low as 5) it is essential that we use reported earnings.

I appreciate that the author stated that estimated earnings were in use but he did not mention that operaing earnings were in use and operating earnings are like someone facing bankruptcy stating that they are in a great risk, if you just ignore their debt.

Please people, stop passing on the lies. I expect Jim Cramer to lie to me, I do not expect you to lie to me, to yourselves and to each other.

www2.standardandpoors....

According to Standard & Poor's the estimated P/E for the end of 2010 is expected to DROP to 24 after leveling off to around 30 by the end of 2009 from its current level of nearly 2,000.

Jul 06 09:47 PM

[Fred Voetsch:]

"Investors are looking for candidates like General Mills Inc (GIS). "


General Mills is a boring company that in a slow-growth economy should have a P/E of 7 or 8...and soon enough will.

Wal-Mart has a 14 P/E...ARE YOU KIDDING ME? Wal-Mart? Their revenue is falling and yet the they are outperforming everyone else; the star peformer. They will soon enough have a 5 P/E, which is what they deserve.

Jul 06 09:58 PM

[ken3602:]

Difference between perma bears and perma bulls;

perma bears: they never admit it's a bull market until the bull market ends. (so they never lose.)

perma bulls: they never listen.

I am not sure if we are in a very long and brutal bear market, but am pretty sure we didn't see a real bottom yet.

Jul 06 11:10 PM

[Michael Clark:]

My wife was considering buying a pair of shoes last month but couldn't make up her mind -- so she had the clerk write down the name of the shoes for her so she could think about it. When we were home, my wife decided to buy them and asked me to call the store and ask them to hold the shoes. She gave me the note, that also had the phone number on it. The name of the shoes was 'Giddy Bear Trap'. The real name, I found out later, was 'Giddy Bare Trap'...but I took the misspelling as a sign from God.

On the slightly more rational side, my own technical analysis indicates the rally is probably kaput since long-term momentum is breaking down. I've developed a long-term momentum indicator that no one else has, as far as I know. Look at the S&P 500 chart here, and the M5 Momentum Indicator -- and look at its negative trajectory:

home.mindspring.com/~m...

Jul 07 02:58 AM

[Michael Clark:]

Any help on how you publish a web link on Seeking Alpha? It seems that the links all get reworked -- so that they don't work. The chart is at:

home.mindspring.com/~mclark7/GSPC_D%20760...

Jul 07 03:01 AM

[Vox Rationalis:]

On Jul 06 09:47 PM Fred Voetsch wrote:

> www2.standardandpoors....
>
> "As Reported Earnings are essential if long periods of historical
> data are important."

Your selective editing is impressive. The very next sentence: "Operating earnings have become the choice for forward looking analyses and forecasts."

So since the whole world uses operating earnings for predictions, why are you using GAAP earnings? From 09Q4 to 10Q1 the S&P as-reported estimate jumps 33%, while the operating estimate declines 3%. Which do you think will more accurately describe the reality of corporate earnings between those two quarters?

Jul 14 11:36 AM