Stock prices advanced again Thursday, cruising through some noteworthy milestones – 12000 for the Dow and 1300 for the S&P 500 – before settling back below those marks with more modest gains. The Dow, S&P 500 and the Nasdaq 100, the 100 largest cap stocks in the Nasdaq Composite, all hit highs for this cycle. In the case of the Nasdaq 100 index, Thursday’s close was the highest reading on that index in almost 10 years, although it remains 50% below the 2000 peak. The S&P 400 MidCaps and S&P 600 SmallCaps, last year’s big winners, failed to make new highs this week (along with the Nasdaq Composite) and have fallen slightly behind the S&P 500 so far in January. We stress that this trend isn’t yet enduring enough or significant enough to merit being called a trend; in fact, within the S&P 1500 universe this week has seen more positive action in the small- and mid-cap sectors. Nevertheless it may be worth watching.
INVESTMENT OUTLOOK…The respectable year-end rally in stocks, fashioned out of improvement in leading economic indicators, has continued early in 2011. At some point, the U.S. economy will have to do without the trillion dollar stimulus packages – past and prospective – that have been contributing to the quickening seen lately in economic activity. In the end, strong corporate earnings can overcome a lot of this market’s shortcomings, and we judge the profits outlook for 2011 to be good. Stock market volatility has receded from the awful levels of 2008-09, but we would not be surprised if there are occasional bouts of volatility popping up through 2011, although so long as earnings prospects remain favorable the general trend of stock prices figures to be up.
Copyright © 2011 by Wright Investors’ Service, Inc.