With tops across the Nasdaq, Dow Jones Industrial Average (DJIA) and S&P 500, concern is growing that, with a relatively poor economy and high unemployment, low interest rates cannot keep pushing the market upward. Something else will have to aid the rally. The most likely support will come from just a few stocks. If most of these do not continue to rally, the market rally is over.
With Alcoa Inc. (NYSE: AA), Bank of America Corp. (NYSE: BAC) and Hewlett-Packard Co. (NYSE: HP) out of the DJIA, new components Goldman Sachs Group Inc. (NYSE: GS), Visa Inc. (NYSE: V) and Nike Inc. (NYSE: NKE) are not large enough in market cap or weighting within the index to help it much. The DJIA is now weighted heavily toward big oil — Chevron Corp. (NYSE: CVX) and Exxon Mobil Corp. (NYSE: XOM) — and to International Business Machines Corp. (NYSE: IBM), Boeing Co. (NYSE: BA) and McDonald’s Corp. (NYSE: MCD).
Big oil should benefit generally from higher oil prices, if history is any guide. Crude above $100 a barrel does not translate directly into profits, but it certainly is among the primary drivers of these shares. Boeing Co. (NYSE: BA) has emerged from problems with some of its planes and continues to steal market share from rival Airbus. IBM is the last man standing among old tech. Its ability to diversify into software and services, something its peers have not matched, has served it well, and that does not seem to be near an end. McDonald’s is a sort of Lazarus. Each time its sales slip, the fast food company invents a new sandwich or shimmies into another market.
The stocks at the top of the Nasdaq Composite likely will be where the advance of the market is supported or stifled. It is composed of several companies that are out of favor, which could be balanced by several that are well liked. Apple Inc. (NASDAQ: AAPL) still holds the top position. It is followed by Microsoft Corp. (NASDAQ: MSFT), which is in trouble. Intel Corp. (NASDAQ: INTC), which is not doing much better, is also among the top five. Those three may not aid an ongoing rise. However, near the top as well are Google Inc. (NASDAQ: GOOG), Amazon.com Inc. (NASDAQ: AMZN), Qualcomm Inc. (NASDAQ: QCOM) and Costco Wholesale Corp. (NASDAQ: COST), which have not lost their statuses as darlings. Each of these has continued to advance, not just recently, but over several years.
The fate of the market’s rise rests heavily with about a dozen companies. The more they have a good year individually, the more likely the rally is to continue.