@theMarket: Third Quarter is Kind to Stocks
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Predictably, after hitting that historic round number, the Dow and the other averages headed south in a bout of profit-taking but I suspect that won't last for long. The economic numbers are becoming progressively more upbeat. Take the October Empire State Manufacturers Survey, conducted by the Federal Reserve, for example. It measures manufacturing output in New York. The state experienced the highest increase in five years, almost double last month's number, and far above consensus. At the same time, U.S. jobless claims came in the lowest level since January. It will be hard for the market not to move higher with this kind of data coming out weekly.
Unfortunately, this latest "Dow 10,000" milestone will probably be ignored by most money pros. After all, it first reached that level over a decade ago and has been above and below that level many times since. The Dow is also considered the "tourist index" and not representative of the market as a whole since it contains only 30 stocks (compared to the S&P, which includes 500 companies). So the "pros" ignore it for the most part.
Yet, I wouldn't discount the psychological impact of reaching and surpassing that level on the Dow, especially among the majority of retail investors who do use the Dow as their market barometer.
"It says to me that maybe it's safe to dip my toe back in the water," said Victoria Spencer, a marketing consultant for Vox radio in Pittsfield, "It changes my mind-set."
I believe the same can be said for many other investors who may, for the first time since the financial collapse, wonder if it isn't time to go back in the stock market.
Since the beginning of the year, even as the Dow scored its steepest advance in 70 years, individual investors were buying 18 times more bonds than stocks, according to data gathered by Morningstar and Bloomberg. A net $254.6 billion went into bond funds while only $14.5 billion found its way into stock funds. Almost $3.45 trillion still sits in U.S. money market accounts.
The pros, on the other hand, seem to be doing the opposite. The latest Bank of America/Merrill Lynch survey of institutional money mangers (229 money managers managing $616 billion) indicates that they are shifting out of cash and into equities in a big way. Their cash is at the lowest level since 2004 and 39 percent are overweight in equities compared to 27 percent a month ago. The also believe that we will see double-digit growth in corporate profits over the next year.
Many bulls are betting that when the Dow spends some time over the 10,000 level, Mom and Pop will come back into the market with the trillions they have stashed in money markets. That could happen, although, a huge avalanche of money pouring into stocks would probably indicate a short-term top in the averages to me. So far, there is no evidence of this windfall of increased volume on the up days in the market. But it's a nice theory and we can always hope, right?
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at
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(toll free) or e-mail him at wschmick@fairpoint.net Visit www.afewdollarsmore.com for more of Bill’s insights.You can also tune in to Bill’s "@theMarket" show on Vox radio every Friday morning at 8:35, 9:35 and 11:05 or on WBRK at 4:05 every weekday afternoon.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM.
