Incredible Strength of the 2012 Stock Market
Feb 10, 2012
Posted by Jody Eisenman | Filed under Uncategorized
Any equity investor would, at least by now, be cognizant of the great start the US equities market has gotten off to this year. As of yesterday’s close, the DJIA and NASDAQ composite are up around 5%. The S & P is lagging, but still up 2.3% year to date. Every attempt at a selloff has been met with another wave of buying. The banking index, which really lagged last year, is up over 13% YTD. Technology stocks are also flying, with Apple up almost 90 points thus far (+21.7%), and Netflix up 57 points (+80.1%). The tech sector index has closed higher 17 out of the last 18 days. Part of the reason for this jump are better than expected earnings, but part is due to a general market sentiment that the world as a whole is becoming more attractive for investment. Although Greece is still in deep trouble, and the Middle East is in turmoil, investors have really shrugged off all the negatives and just continue to buy stocks.
There are two telling signs. The first is the yield on the 30 year Treasury bond. Yields on treasuries were at historic lows for most of last year, but this year is another story. The 30 year currently yields 3.20%, up from 2.96% a month ago. This is an excellent indication that investors are willing to trade the safety of treasuries for the risk of stocks. The second sign is the VIX, which is a measure of volatility I have discussed here several times. A higher VIX means greater volatility and usually lower stock prices as investors flee from risky assets. Thus, it is very telling that the VIX closed at 18.63 yesterday, after spending most of the second half of last year above 30. A lower VIX means that volatility is lower, and investors do not see risk factors as significant as last year.
What’s next? As I have said previously, the trend is your friend, and until there is a breakdown, I think investors will remain bullish. However, should Greece implode, or war drums begin to louder in the Middle East, prices could change quickly. As always, stay nimble!
