Dow Jones Return Since 1930

In the near term, it's clear how buying at a market high or low can affect returns.  If you had bought the S&P 500 in October of 2007 you'd be down 10%, but if you bought in March of 2009 you'd be up over 100%.  People tend to think that over long periods of time the difference will even out.  Below is a chart of the Dow going back 100 years showing the difference between buying at the peak in 1929 and the trough in 1932.  Over the course of 80 years the difference is about 300bps annualized.  This is the difference of multiplying your money 33x and 321x.

AAPL Share Price Passes GOOG

Though this fact is functionally irrelevant, Apple passed Google today to become the 3rd highest priced stock per share in the Russell 1000.  Sitting above AAPL now are only NVR and PCLN.  Of course AAPL still has a ways to go before it catches BRK/A.

Comparing 2006 to 2012 revisited

The economic cycle theorist in me feels compelled to draw a parallel between 2006 and 2012 mostly because since 2009 the S&P 500 has tracked the path of the last cycle extremely well.  Below is an updated chart comparing 2012 thus far to 2006.  We've already risen as much as we did in all of that year, so (stating the obvious) either there will be a pullback or the historical relationship will break down.

ISM Commentary

The ISM manufacturing index was released Monday and the non-manufacturing index was released today.  While each index was above 50, both are still below the peaks reached in 2011 and the non manufacturing index was actually lower than it was last month.  Still, outside of the numbers, the commentary from respondents to each survey is much better than I can recall at any point this cycle, even when the ISM number was higher.  Below are the comments that get paired with the release.  These may be a good precursor to what the tone of earnings calls will be in a couple weeks.

Comments From Manufacturing Survey:


WHAT RESPONDENTS ARE SAYING ...

• "Business is robust, driven by a healthy demand for exports and relatively stable raw materials [pricing]." (Chemical Products)
• "Our customers are reporting a potential 10 percent to13 percent increase in purchases for 2012. Actual orders continue to be slow to appear, but expectations continue to be high." (Machinery)
• "Business conditions [are] very strong and so is outlook." (Fabricated Metal Products)
• "We have been experiencing 6 percent annual growth and expect that to continue in the near term." (Food, Beverage & Tobacco Products)
• "Business continues to be brisk — if not robust — [this] month and looking forward." (Miscellaneous Manufacturing)
• "Business remains essentially stable, with some concerns regarding continued slowdown in China." (Computer & Electronic Products)
• "Business remains strong." (Primary Metals)
• "Business improved year over year for the first quarter." (Plastics & Rubber Products)
• "Generally increasing sales/demand [is] driving higher capacity utilization." (Transportation Equipment)
• "Sales appear to be picking up over last year at this time, but still have a ways to go." (Wood Products)

Comments From Non Manufacturing Survey:


WHAT RESPONDENTS ARE SAYING ...

• "2012 continues ahead of forecasted pace through March." (Wholesale Trade)
• "February was a great month for auto sales — much better than expected. Forecasted sales volumes for the year are being revised upward." (Retail Trade)
• "Positive year-over-year growth is finally being seen as customers' discretionary spend is up, and overall traffic is increasing as well. Increased investments in marketing promotions and advertising during the past few months have helped improve customer loyalty, evidenced by longer stays and increased frequency of visits." (Arts, Entertainment & Recreation)
• "Companies are seeking professional services to continue efficiencies while positioning for growth, when the top line comes back." (Professional, Scientific & Technical Services)
• "We are starting to see the private sector building again; the money is starting to flow into construction." (Construction)
• "Increasing demand for healthcare services while engaging in a more intense effort to reduce costs universally. [We are doing this] prior to implementation of healthcare reform, which is expected to dramatically reduce revenue by approximately 25 percent." (Health Care & Social Assistance)

S&P Earnings Multiple

To echo the previous post...

A primary argument for stocks being cheap is that consensus for S&P 500 earnings this year is $103, which implies that the index is trading at 13.7x forward earnings.  Because the index is market cap weighted though, the index estimates skew the P/E of the index toward that of the larger companies and can sometimes give an inconsistent picture of the average stock in the index.  In order to adjust for that effect, below are the S&P 500 multiples of the average constituent based on 2011, 2012 and 2013 estimates.

P/E Multiple of S&P 500 Index vs. Individual Constituents

Stocks Relative to 2013 Earnings

Since the first quarter of 2012 is now over and the S&P 500 is up more than 12% for the year, there's a good chance that there will start to be chatter about the valuation of the S&P relative to 2013 earnings.  To aid in this analysis below are the 30 most expensive and 30 cheapest stocks relative to 2013 earnings estimates:

Most Expensive S&P 500 Stocks Based on 2013 Estimates

Least Expensive S&P 500 Stocks Based on 2013 Estimates

Google Trends Europe

The last couple days, Europe has been trying to claw its way back into the news cycle, but generally doesn't seem to have the same effect on the US stock market that it did in times past.  As a proxy for American interest in Europe, below is the google trends analysis for searches for Europe since 2004.  Search volume has steadily declined over that time period, and news reference volume has declined in 2012 after being relatively elevated since 2008.