Don't Change Your Tune

 | Mar 06, 2013 | 3:30 PM EST
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The headlines will continue to pour in now. They'll tout the new market highs; stories of investors who cashed out of stocks at precisely the wrong time; and profiles of blue-collar Americans who stuck it out and now are reaping gains. Then, of course, is the ultimate headline: For individual investors sitting on the sidelines, is now the time to jump back into stocks to jump back into stocks?

Rather than ponder that question, I'm more intrigued by some data points I've recently observed that I think readers will enjoy perusing. Below is a data-comparison snapshot with the last time the Dow was at 14,164 before Tuesday's move. Data are courtesy of our friends at CNBC: 

  • Regular gas price: Then $2.75 per barrel; now $3.73
  • Gross domestic  growth: Then plus 2.5%; now plus 1.6%
  • Americans unemployed (in labor force): Then 6.7 million; now 13.2 million
  • Size of Fed's Balance Sheet: Then $890 billion; Now $3.01 trillion
  • U.S. debt as a percentage of GDP: Then about 38%; now 74.2%
  • U.S. deficit (last 12 months): Then $97 billion; now $975.6 billion
  • Total U.S. debt outstanding: Then $9.008 trillion; now $16.43 trillion
  • U.S. household debt: Then $13.5 trillion; now 12.87 trillion
  • Consumer confidence: Then 99.5; now 69.6
  • 10-year Treasury yield: Then 4.64%; now 1.89%
  • Gold: Then $748 per ounce; now $1583
  • NYSE average LTM volume (per day): Then 1.3 billion shares; now 545 million shares  

All of these data comparisons are interesting, though many -- like the size of the Federal Reserve's balance sheet -- are not that shocking. That said, a couple of the comparisons stand out to me. U.S. household debt is down by nearly $1 trillion, which is somewhat encouraging, especially if that trend continues. 

Also interesting is the nearly 60% drop in NYSE average daily volume: Investors have fled the market in droves. Yet here we are, with the stock market back to where it was. If some of that lost volume decides to come back, the market could get really going from here. In a CNBC interview earlier this week, Warren Buffett said that while he preferred buying stocks at earlier prices, stocks remain the most attractive asset class relative to all others today. Buffett was quick to point out, however, that interest rates hold the greatest influence on equity prices today. A rate hike would make stocks less attractive. 

Flow of funds is another critical element to stock prices. According to The New York Times, the stock market received a net inflow of more than $76 billion in the past 12 months. This calendar year has seen a net inflow of nearly $28 billion. If that rate of inflows continues into 2013, the market could be in for another banner year. 

Yet, as the past four years have shown, even a 100% plus rise in the Dow hasn't meant a plentiful harvest for all stocks in the index; in fact, it's been the opposite. The Dow's rise has been thanks to just a handful of companies. Home Depot (HD) has been the standout since the last market peak, up 108% since October 2007. The other big winners have been names like IBM (IBM) and McDonald's (MCD), while Dow components like Alcoa (AA) is still down nearly 80%.

So even if the market continues to climb further, it's not a mandate that all stock prices will follow suit. After all, who would have bet that Apple (AAPL) would be down nearly 20% vs. a year earlier while the S&P 500 advanced 15%? Whether a market is surging higher or pulling back, the disciplined approach remains best: picking attractively priced stocks with healthy balance sheets and strong cash flow generation. It's no different this time.



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