/perspectives/weekly-viewpoint/nasdaq-breaks-its-15-year-curse

Nasdaq Breaks Its 15-year Curse

The Dow Jones Industrial Average (Dow) added 1.42%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 1.69%, the Standard & Poor’s 500® Index (S&P 500) finished up 1.75% and the Nasdaq Composite Index (NASDAQ) tacked on 3.25%.

April 27, 2015    |    By Mike Schwager

Performance for Week Ending 4/24/15:

The Dow Jones Industrial Average (Dow) added 1.42%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 1.69%, the Standard & Poor’s 500® Index (S&P 500) finished up 1.75% and the Nasdaq Composite Index (NASDAQ) tacked on 3.25%. Sector breadth was positive with all 10 of the S&P sector groups finishing higher. The Technology sector (+4.07%) led the way higher followed by Telecom (+3.43%) and Consumer Discretionary (+3.12%).

Index* Closing Price 4/24/15 Percentage Change for Week Ending 4/24/15 Year-to-Date Percentage Change Through 4/24/15

Dow

18080.14

+1.42%

+1.44%

Wilshire 5000

21996.27

+1.69%

+3.32%

S&P 500

2117.69

+1.75%

+2.86%

NASDAQ

5092.09

+3.25%

+7.52%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 4/20/15-4/24/15

The major market indices finished the week solidly higher with the S&P 500 posting its third gains in the past four weeks.  The big event of the week was the action in the Nasdaq Composite.  Last week’s 3.25% gain was enough to lift the index to a new all time high, finally surpassing the levels reached in March 2000.

While speculative excesses are certainly apparent in pockets of the Nasdaq market, overall the recent advance seems on much healthier grounds than 15 years prior.  On the valuation front, the Nasdaq trades at  30x trailing 12 months earnings, while not cheap, it is certainly cheaper than the 190-multiple that it traded at on the March 10, 2000 peak.  The index is also better diversified amongst sector groups.  Back then Technology accounted for a 65% weighting versus 42% today. Consumer Services and Healthcare now carry a combined weighting of 38% versus 15% back then. The Index has also matured as suggested by the current 1.2% dividend yield. Back in 2000, the yield was only 0.09%.

Elsewhere, US oil prices firmed for a sixth consecutive week on signs idling rig counts has begun to temper production rates.  Geopolitical tensions between Yemen and Saudi Arabia also raised fears of supply disruptions. Global equity markets also finished the week higher with solid performance seen in Japan, China and Europe.

Q1 EPS Season Roundup: While expectations heading into the quarter were lowered significantly due to the plunge in oil prices and the impact of the stronger dollar, companies are posting better than expected results. Through Friday, 202 members of the S&P 500 have reported results with 72% beating expectations and 18% falling short. The current “beat” rate remains solidly above the 63% long-term average.  On the sector level, Consumer Discretionary, Healthcare and Telecom have posted the strongest results whereas, Energy and Materials the weakest.

FOMC Meeting On Tap: All eyes will be on the upcoming Federal Open Market Committee (FOMC) meeting (Tuesday and Wednesday).  While no changes in policy are expected, investors will parse the after meeting communiqué for hints on the timing of the Fed’s initial lift-off in rates.  Consensus expectations seem to be centered on the September meeting for the first move in rates; although the Fed has continually stressed that any move will be “data dependent.” 

Most economic data points during the past few months have been on the weaker side reflecting the tough winter weather and the West Coast port strike. The good news is that the port strikes have been settled and the weather is starting to turn warmer, suggesting these issues should prove transitory in nature and work their way out of the system in the coming months. We are likely to see a repeat of last year’s trend where winter weather weighed on first quarter growth, but pent up demand resulted in a sharp rebound during the second and third quarters – Stay Tuned.

The Week Ahead: It will be another busy week for large-cap earnings with over 160 members of the S&P 500 scheduled to report. Included in this group are several Dow- components including Apple, Merck, Pfizer, Exxon Mobil, Visa and Chevron. Economic reports of note include the February Case-Shiller home price index, the Conference Board’s April Consumer Confidence survey, the preliminary reading on first-quarter GDP, March pending home sales, the April ISM manufacturing index, and the University of Michigan’s final April consumer sentiment survey. A handful of Fed speakers will be out and about later in the week including Fed Governor Tarullo, Cleveland Fed President Mester and San Francisco Fed President Williams.

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm’s headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor’s 500® Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

Past performance is no guarantee of future results. Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.

 

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