Friends
Buckle up. We have a lot to talk about. For starters, we got a bevy of economic data this morning including the jobs report. The government reported that the economy produced 157,000 new jobs in January, which was a little shy of expectations, but the previous months were revised upward. The unemployment rate went from 7.8% to 7.9%. Both the consumer sentiment and the ISM manufacturing numbers both came in a little better than expected. Taken together, along with more corporate earnings reports, the stage was set for a somewhat uneventful day, seeing that we just had a rather impressive January.
On the contrary, stocks rose early and often and by late morning the Dow Jones Industrial Average had crossed the 14,000 level, last seen in October of 2007. Now back then we had a much higher employment rate (or lower unemployment rate, however you want to look at it) and much higher interest rates. On the valuation front, in 2007 stocks were trading at about 17 times trailing 12 month earnings. Today, we are trading at just about 14 times trailing 12 month earnings. If we were to get back to 2007 P/E levels (and there is no rhyme or reason why we should or shouldn’t), then the Dow might trade somewhere around near 17,000 sometime this year. Now calm down, that is not a prediction. Simply put, with central banks continuing to be accommodative and investors desperate not to miss the advance, the path of least resistance seems to continue to be up. Are 4 years of zero interest rates finally taking a toll on the collective investor psyche?
As for today, when all was said and done the Dow closed with a gain of 149 points to finish the day at 14,009. The S&P 500 was up 15 points to close at 1513. Gold was up $7 to trade at $1669 per ounce, while oil was up $.15 to trade at $97.64 per barrel WTI.
Yes, it is great to get back to even if you were putting money into the market in October of 2007, and yes the path of least resistance seems to be up. The press will make a lot of noise about the 14,000 level on the Dow, but something tells me there are still some bumps in the road ahead of us. I am not trying to dampen the mood, heck if anything most of you would probably accuse me a being a cheerleader at times. Enjoy the rally, but let’s not get too far ahead of ourselves. We’ll take it a day at a time and continue to manage risk appropriately.
Have a great weekend everyone and enjoy the Super Bowl. I really don’t care for either team but I guess I’ll pick the Niners. Who you got?
