Why Key Stock Indices Can Still Advance In Wake of New Monetary Policy
Mitchell Clark: The broader market is showing renewed strength in anticipation of the Federal Reserve’s decision on quantitative easing and third-quarter earnings season.
Typically, September is a volatile and tough month for stocks, but there’s a real resilience to the current stock market. Even the NASDAQ Composite is holding up well, considering Apple Inc.’s (AAPL) drop last week.
A key metric for me remains the Dow Jones Transportation Average and the components of the Dow Jones Industrial Average. Top- and bottom-line growth for blue chips is very modest, but balance sheets remain strong, and the institutional drive towards stock market safety and consistency remains a solid investment theme.
Dividends and the prospect for more dividends remain highly attractive in a slow-growth economy, and new funds for equities have to go somewhere. I see no reason why the Dow Jones Industrial Average (INDEXDJX:.DJI) can’t come through with their earnings outlooks going into the last quarter of the year.
But regardless of corporate fundamentals, the Federal Reserve has been and will continue to be the clear driver of this stock market. Institutional investors are still of the mantra that it doesn’t pay to fight the Fed and betting against it by those who get paid to play the stock market is highly unlikely.
Unless there is some new shock to the system, the stock market is likely to finish off a very good year.
If corporations are still wary about investing in new plant, equipment, and employees, the outlook for balance sheets and rising dividends remains strong. For years now, it’s been much easier for corporations to borrow cheap money and buy back shares in order to pay for increasing dividends. The financial health of countless blue chips is strong enough to carry their share prices right into 2014. (See “Why I View the Blue Chip Retrenchment as a Good Thing.”)
Getting back to the stock market, the Dow Jones Transportation stocks (NYSEARCA:IYT) remain a top—though somewhat old-school—stock market indicator, and their performance continues to be robust after experiencing consolidation since May.