The Week Ahead: This Head-Scratching Rally

 | May 12, 2013 | 8:00 PM EDT  | Comments
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Stock quotes in this article:

de

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cnh

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agco

The stock-market rally continued last week, with the S&P 500 climbing more than 1%, bringing the year-to-date return to just over 14.5%. This has some folks beginning to scratch their heads. The S&P is now at new highs as it trades at a 12-month forward price-to-earnings ratio of just over 14x -- yet individual investors are getting ever more bullish on the market.

Not only that, but they have ratcheted up margin debt as well. At the end of March, the most recent data, investors carried $379.5 billion in margin debt at New York Stock Exchange member firms. That's rather shy of the record $381.4 billion set in July 2007. Still, interest rates are low, and likely to remain so for some time -- at least around 24 months at current job-creation levels, if you use the Federal Reserve Bank of Atlanta's job calculator. Given this, and the climbing stock market, it stands to reason that more people are turning toward the market if only so they won't be left out. 

Meanwhile, the American Association of Individual Investors' sentiment survey read at 40.8% on May 8. That's well off the Jan. 24 high of 52.3%, but it still represents a steep climb from its 19.3% bottom on April 11. For perspective, the long-term bullish percentage average is 39%. While the current ratio isn't at an extreme level just yet, it's something to keep an eye on and consider, particularly if April margin-debt figures continue to climb. 

As for the coming five trading days, corporate earnings will slow, but we'll have a pick-up in domestic economic data. First on tap will be April retail sales, which will clue us in to the state of the American consumer. Average gas prices at the pump dropped 4% between March and April, so folks had some extra cushion in their paychecks, but we'll also get a sense as to how they reacted to the much-talked-about congressional sequestration.

Later in the week, we'll get the latest on housing with April starts and building-permit data, as well as the latest take on inflation from both the consumer and producer-price indices. One interesting statistic that I came across this week was the Economist's Big Mac Index, which is a lighthearted way to measure real inflation. Since 2002, the Big Mac has risen in price at nearly 3x the rate of the official inflation rate.

Turning to earnings, there far fewer corporate earnings reports are set for release this week, but plenty of numbers will still demand your attention. Both Cisco (CSCO) and Applied Materials (AMAT) should offer clues into tech spending, while Deere (DE) should benefit from strong domestic trends in the agriculture sector. Following stronger-than-expected results at both CNH (CNH) and Agco (AGCO), it would be disappointing if Deere reported merely in-line numbers this week.

Following April retail-sales figures early in the week, scheduled to issue their quarterly results are Macy's (M), J.C. Penney (JCP), Nordstrom (JWN) and Wal-Mart (WMT). 

 

__________________

Economic Calendar

Monday, May 13

  • Retail Sales (April)
  • Business Inventories (March)

____

Tuesday, May 14

  • Import/Export Prices (April)

____

Wednesday, May 15

  • Mortgage Bankers Association Mortgage Index (Weekly)
  • Producer Price Index (April)
  • Empire Manufacturing Index (May)
  • Industrial Production (April)
  • Capacity Utilization (April)
  • National Association of Home Builders Housing Market Index (May)

____

Thursday, May 16

  • Initial and Continuing Jobless Claims (Weekly)
  • Consumer Price Index (April)
  • Housing Starts (April)
  • Building Permits (April)
  • Philadelphia Federal Reserve Index (May)

____

Friday, May 17

  • Michigan Sentiment Index (May)
  • Leading Indicators (April)

___________________

Earnings Calendar

Monday, May 13

  • NAPCO Security Systems (NSSC)
  • Sun-Times Media Group (SVN)
  • Take-Two Interactive Software (TTWO)
  • Zoltek Companies (ZOLT)

____

Tuesday, May 14

  • Agilent Technologies (A)
  • Crumbs Bake Shop (CRMB)
  • Plug Power (PLUG)
  • TranSwitch (TXCC)
  • The Valspar Corp. (VAL)

____

Wednesday, May 15

  • Arctic Cat (ACAT)
  • Authentidate Holding (ADAT)
  • Cisco Systems (CSCO)
  • Deere & Co. (DE)
  • Eagle Materials (EXP)
  • Macy's (M)
  • Audiovox Corp. (VOXX)
  • Yoku.com (YOKU)

____

Thursday, May 16

  • Applied Materials (AMAT)
  • Aruba Networks (ARUN)
  • Brady Corp. (BRC)
  • Brocade Communications (BRCD)
  • Flowers Foods (FLO)
  • ChipMOS Technologies (IMOS)
  • Jack in the Box (JACK)
  • J.C. Penney Co. (JCP)
  • Nordstrom Inc. (JWN)
  • Prestige Brands (PBH)
  • SINA Corp. (SINA)
  • Wal-Mart Stores (WMT)

____

Friday, May 17

  • Constellation Energy Partners (CEP)

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