After gaining 30% or so in 2013, the markets continue to be on one of the most impressive bull runs in modern history. Here is how the four key indices closed out the first half of 2014: The Dow Jones Industrial Average (chart) finished up 1.5%, the Nasdaq (chart) gained 5.5%, the S&P 500 (chart) advanced 6.1% and the small-cap Russell 2000 (chart) closed out the first half of 2014 up 2.6%. Looking back to the market lows of early 2009, these aforementioned indices have tripled or better in price, which is simply stunning.
I think now is as good a time than any to begin to take a look at how the major averages can continue to rise in spite of almost tripling over the past 5 1/2 years. What could be the catalyst(s) going forward? It’s no secret that the Federal Reserve is scaling back its asset purchases and are scheduled to be finished by year-end, so no surprise there. This in fact is where the bear camp is growling that the end of the Fed stimulus program could be the catalyst to end this historic bull run. What about corporate earnings? In my humble opinion, herein lies the single most important catalyst that will either add fuel to this incessant bull run or put the brakes on it. If it’s the latter, this could also create the first real correction in stocks, something that hasn’t occurred in years.
Investors will not have to wait too much longer for Q2 earnings reporting season is upon us. The first key earnings release that has economic implications will be Alcoa (NYSE: AA) which is due to report next Tuesday after the close. I will be very interested to see the top-line growth of Alcoa which will certainly shed some light as to the health of the global economy. Investors have been bidding up Alcoa most of the year in anticipation of an expanding global backdrop. Another economically sensitive stock at least as it pertains to the consumer is Family Dollar Stores (NSYE: FDO). Family Dollar is scheduled to report their quarterly results next Thursday before the market opens. Then by mid-July we will be in high gear to hear how corporate america fared in Q2. The week of July 14th, earnings are scheduled to come out of American Airlines (NYSE: AAL), American Express (NYSE: AXP), Blackrock ( NYSE: BLK), Citigroup (NYSE: C), Whirlpool Corp (NYSE: WHR), JPMorgan Chase (NYSE: JPM) Goldman Sachs (NYSE: GS), Johnson & Johnson (NYSE: JNJ), Intel (NasdaqGS: INTC), Yahoo (NasdaqGS: YHOO), Bank of America Corp (NYSE: BAC), Ebay (NasdaqGS: EBAY), U.S. Bancorp (NYSE: USB), Yum Brands (NYSE: YUM), Baker Hughes Inc (NYSE: BHI), UnitedHealth Group (NYSE: UNH), Blackstone Group LP (NYSE: BX), International Business Machine (NYSE: IBM), Google (NasdaqGS: GOOGL), Bank of New York Mellon Corp (NYSE: BK) and General Electric (NYSE: GE) just to name a few. As you can see, I think it is safe to say that by the middle of July or so we will have a pretty good idea of how corporate America is faring.
Please note that in recognition of the 4th of July holiday, the markets will be closing at 1pm E.S.T. on Thursday and is closed on Friday the 4th. Both Paula and I wish everyone a very safe and happy 4th of July 🙂