New Stock Market Highs Fighting Many More Outside Pressures Than Usual: Time to Panic?
Investors often wonder what to think when the stock market hits new all-time highs. Do they sell or do they chase the market higher? The bull market of the past seven years has now magically landed at new all-time highs in the Dow Jones Industrial Average and the S&P 500. Did you ever find less enthusiasm about the stock market at all-time highs? It is hard to imagine that the political pressure is going away, and didn’t all the economists and analyst warn that the unexpected Brexit news would wreck the economy and the markets?
24/7 Wall St. wanted to review how puzzling this is with other indicators, exchange traded funds and other outside indicators. The reality is that a lot of money fleeing negative interest rates and looking for yield may still be the main driving force. At some point that will bring a correction, but we have not bothered focusing on many index levels because the two main indexes hit all-time highs.
The SPDR S&P 500 ETF Trust (NYSEMKT: SPY) hit an all-time high of $215.45 on July 13, but the S&P 500 index had risen over 7% in just 10 days from the post-Brexit lows.
Meanwhile, the Nasdaq and Nasdaq 100 index have not hit new highs. The Nasdaq itself was last seen at 5,015, compared to a 52-week high of $5,231.94. One reason is the lagging shares of Apple Inc. (NASDAQ: AAPL). It may not be fair to say that Tim Cook isn’t leading the company in the right direction, but it is fair to point out that Apple’s product refresh cycles are lengthening and that new iPad sizes, smaller iPhones and an unenthusiastic launch of the Apple Watch just aren’t driving much interest. At $97.15, Apple is down from a 52-week high of $132.97, and its consensus price target has fallen to $122.33.
Another weak force for the Nasdaq is that the biotech sector remains weak or muted after years of growth, with the presidential election and drug pricing pressure weighing. The SPDR S&P Biotech ETF (NYSEMKT: XBI) was last seen trading at $56.84, with a 52-week range of $44.16 to $91.11. If the SPDR S&P Biotech ETF being down almost 38% from its 52-week high does not signal weakness, then what does? At least there is a new list of the top biotechs with pipelines valued at close to zero.
Citigroup is warning investors that the likes of AT&T Inc. (NYSE: T) and other high-yield defensive dividends have begun to trade at a premium. Their take: AT&T (and Verizon) dividend chasing has just gone too far.
Gold and oil are sending odd signals. Gold rallied handily during the post-Brexit mess, to the point that gold holdings in ETFs were now larger than all but a few central banks. The SPDR Gold Trust (NYSEMKT: GLD) hit a recent high of $131.15, but it was last seen down at $128.25. Gold itself was attempting to break that $1,400 per ounce mark again but has since pulled back to $1,345 or so. Oil had recovered from under $30.00 back up to $50.00, but that also has pulled back. Remember how “the stock market follows oil” lasted for months and months? Crude was last seen trading down over 4% at $45.50 per barrel (for WTI).
American Water Works Co. Inc. (NYSE: AWK) reached a peak above $85.00 in recent days, but this has started pulling back as well. American Water Works may be in the 24/7 Wall St. 10 stocks to own for the decade, but the reality is that many analysts have been downgrading this water utility. The logic is a disconnect between investors wanting the safety of water and the real value of the investment.