Important Week For The Summer Rally

 |  Includes: AGCO, DIA, ESV, GLP, MDC, SPY
by: David Brown

The market opened on positive note this morning after generally positive performances by Asian markets (Japan was closed for a holiday) and a good start in Europe. This carried forward the positive momentum of the five-day up market last week and a seven-day overall winning streak, with both the DJIA and the S&P 500 reaching new all-time highs.

There was a short burst of profit-taking this morning, but after briefly dropping into the red the market quickly regained its momentum to extend the winning streak to eight days and more new all-time highs. The S&P 500 flirted with, but did not exceed its all-time intra-day high of 1687.2.

While last week's corporate announcements that kicked off the Q2 earnings season were mixed, there were not enough negatives to derail the increasing flow of funds from fixed income and money markets into the equity markets. And while a few favorable economic reports didn't hurt the cause, it was clearly the FOMC minutes that provided the fuel, when notes were published that showed it was not a "done deal" to start lowering the stimulus as early as September. Chairman Bernanke echoed as much by emphasizing that employment data would need to improve strongly to allow the beginning of easing the monthly bond purchases.

Jobless claims last week were in fact worse than recent weeks, increasing from 343,000 to 360,000. The producer's price index (PPI) was positive and that gave the bulls a bit of support because it is generally bullish for producers to feel confident enough to raise their prices. The first Michigan consumer sentiment report for June was up a bit as well.

Today's economic news was mixed as well. Retail sales, at 0.4%, were well below the expected 0.8% and 0.1% below last month's adjusted reading of 0.5%.

Contrasting that news, however, was a very bullish Empire State Manufacturing Survey, coming in at a surprising 9.46, which not only easily beat the expected figure of 5.00 but did much better than last month's strong reading of 7.84. Business Inventories, at 0.1%, were less than the previous month but a tad higher than expected.

So what does all of that mean? Simply put, we continue to get reassurance that while growth is weaker than hoped it is still rising gradually from its doldrums. It also means the stimulus curtailment will likely be postponed a bit further into the future. (It will still happen however!)

The fact that the Utilities led the sectors today (up over 1.6%) and was runner-up to Basic Materials last week (at 4.32%) provides further evidence that money is indeed flowing from fixed income into the equity markets, seeking a safe haven in strong dividend-paying stocks.

Also, two other events endorse the likelihood that industrial output will continue to grow and create more jobs: (1) Producers have raised their prices (PPI went from 0.5% to 0.8%), and (2) the market made Basic Materials the best performing sector last week.

Mid-cap growth narrowly beat out small-cap growth for top style/cap honors last week, showing that the concerns about the global economy continue to make investors wary of large caps.

Earnings season gets in to full swing with week with a bevy of major earnings reports every day. Economic releases will also be heavier than usual this week, with important indices such as industrial production and the housing market indices. The semi-annual appearance before Congress by Chairman Bernanke and the Philly Fed report will also represent opportunities for the economy to speak for itself.

Whether or not the markets move into even higher territory will depend on the cumulative picture painted by these factors: continued steady modest growth from the economy; stable interest rates for another three to six months; and positive forward guidance from most corporate CEOs.

See last week's market stats and a few stock ideas below.

4 Stock Ideas for this Market

Here are four stocks that I found with a GARP search:

AGCO Corporation (NYSE:AGCO)

  • Industrials Sector - Mid-cap
  • AGCO is a manufacturer and distributor of agricultural equipment and related replacement parts globally. It has steady, well-priced, growing earnings and pays a mall dividend (0.8%).
  • Price (close) on 7-15-13: $54.37

Ensco plc (NYSE:ESV)

  • Energy Sector - Large-cap
  • Ensco is a contract offshore driller with a steady record of beating estimates and paying higher dividends (currently at 3.5%) out of steadily increasing earnings.
  • Price (close) on 7-15-13: $59.88

Global Partners LP (NYSE:GLP)

  • Energy Sector - Mid-cap
  • GLP is a hydrocarbon distributor with steady earnings growth, reasonable valuation, and growing dividends (currently at 6.0%).
  • Price (close) on 7-15-13: $40.20

M.D.C. Holdings, Inc. (NYSE:MDC)

  • Consumer Cyclicals Sector - Mid-cap
  • MDC operates in the two business segments: homebuilding and financial services. There are concerns about cash flow metrics, but MDC has very significant rebound growth potential at a good value, IF cash flow continues to improve.
  • Price (close) on 7-15-13: $32.93

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.