Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Exxon Mobil and Other Large-Cap Leaders Will Continue to Motivate the Stock Market

Companies / Corporate Earnings Mar 01, 2011 - 08:50 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleJon D. Markman writes: The trends that are established at the start of the year often persist through yearend.

That makes now - the first day of March - a good time to look at the unique trends that have characterized the first few months of 2011 and hazard a guess as to whether or not this bull market will keep running.

The biggest anomaly that I see so far is the absolutely rockin' pace of the Dow Jones Industrial Average. These big-cap stocks are blowing down the joint, and showing no signs of stopping.

Normally, in a strong year, you will see the emerging market stocks or the Nasdaq Composite Index in the lead. But that hasn't been the case in 2011. It's the old guard of the Dow Jones Industrials in the lead this time around.

So why is this happening, what does it mean, and how much longer will it last?

The answer to the first question is most likely embedded in a phenomenon we have been talking about for months: The sudden reversal higher of large-cap energy stocks -
particularly Exxon Mobil Corp.(NYSE: XOM).

I have said that XOM is so big that it can put the rest of the market on its back and carry it higher. That is pretty much what's happening.

Just like the Los Angeles Lakers are Kobe Bryant's team, the Dow is now Exxon's team --and the blue-chip energy company is looking like the market's most valuable player.

Energy makes up 13% of the big indexes, so when Exxon and its peers are rising in value they present a virtually unstoppable force.

Oil prices breached $100 a barrel for the first time in two years last week.

The higher price of oil could be a major headwind for developed market economies in the second half of the year. But the value of oil company stocks will surge because current earnings estimates are all predicated on the idea that the global benchmark price will be around $80-$85 a barrel this year. If it's more like $90-$105 a barrel, then you will see energy companies' earnings estimates start to explode higher along with their stock prices.

Now it may seem like crude oil itself is the way to exploit a move like this - but it's not. Energy company equities are the way to go, and here is why.

Oil company prices and spot crude prices are highly correlated, but energy stocks outperform energy indexes on a total return basis for a very simple reason: Yield.

Energy stocks like Exxon produce dividends, while the "carry" on commodities is negative. For the commodity futures and the exchange-traded funds (ETFs) that track them, the negative yield stems from the cost of rolling futures contracts. For physical holders, it's the cost of storage and insurance.

Of course, energy companies aren't all that's driving the Dow.

Other DJIA companies that are playing well include The Walt Disney Co. (NYSE: DIS), Caterpillar Inc. (NYSE: CAT), International Business Machines Corp. (NYSE: IBM), 3M Co. (NYSE: MMM), United Technologies Corp. (NYSE: UTX) and Verizon Communications Inc.(NYSE: VZ).

Pay close attention to Caterpillar, Disney, United Technologies and IBM. They represent four distinct facets of the economy: construction, media, industry and technology. And Exxon adds energy. Only healthcare stocks like Merck & Co. (NYSE: MRK) and struggling techs Microsoft Corp. (Nasdaq: MSFT) and Cisco Systems Inc. (Nasdaq: CSCO) are not pulling their weight.

The bears can complain all they want about how this rally has been bought and paid for with debt and funny money from the U.S. Federal Reserve. But we need to at least acknowledge that it seems that we have gotten what we paid for: A rip-roaring bull market for the most important industrial giants in the world.

There's an argument to be made that it won't last longer than it takes U.S. Federal Reserve Chairman Ben S. Bernanke to end QE2. But in my view - which is based on historical precedent, intuition and experience - it's hard to bet against this bull run.

It takes so much energy to get these giants off their tails and moving higher in sync that it would require a major elbow to the face to knock the earnings momentum and Price/Earnings (P/E) multiple expansion that this move represents off its trajectory.

Dissecting the Data
A quick look at some market data corroborates our recovery story.

Jason Goepfert over at Sundial Capital reports the following set-up:The Standard & Poor's 500 Index recently hit a new 52-week high, then experienced three straight hard down days. But each one was a lesser loss than the day before.

When this has occurred in the past, 90% of the time the benchmark index has rebounded back to its prior highs within two weeks.

It took a median of eight trading days for the S&P 500 to close at a new 52-week high, with eight of the ten instances taking less than 13 days. The maximum loss before hitting a new high averaged -1.1%, with only two of them dropping more than -2% at any point before recovering.

There was one occurrence in October 1997 that took two months and a -10% interim loss before closing at a new high. But other than that, it's rare that you see more selling pressure before bulls gave it another shot.

There are no guarantees that the current setback will recover in exactly the same manner, but the point is that investors tend to react to a given set of stimuli the same way over and over. This data says that when the market is trending up strongly and then gets crunched for three days, it tends to recover quickly.

This won't always be the case, but with a new month beginning today (Tuesday) - an event that has been very bullish over the last two years - and the very positive headlines that are likely to follow February's employment gains, it's a decent bet to work out.

Bulling Through Hurdles
Of course, none of this is to say the ride higher won't be bumpy. The Chicago Board Options Exchange (CBOE) Volatility Index jumped 27.5% on Feb. 22 for its largest gain since May 20, 2010.

European debt woes were in the headlines that day in May 2010, and we now know that those fears ultimately went nowhere: Most European markets made their lows for the cycle in the next one to five days, and were soon off on sharp advances. One of the best examples is iShares MSCI Switzerland Index(NYSE: EWL), which made its low the next day and has since rallied 40%.

The point is that sharp spikes in volatility that engage all sectors, regions, market caps and style groups tend to be terminal events, not initiation events. In other words, they tend to allow investors to get all their selling done at once, and then everyone usually starts to feel better.

Indeed, the U.S. and European markets have risen briskly for the past two years - in spite of any obstacles the market gods have thrown in their way.

The most recent event of this nature occurred a month ago when Egyptian strongman Hosni Mubarak defied expectations by promising to stay in power forever, or at least through summer. There were fears that radicals would take over the Suez Canal and prevent crude oil from reaching Europe, and worries that Islamists would start a new anti-American government on the spot.

Bears loved that story and ran it up the flagpole on the last Friday of January, causing the Dow to sink around 160 points. But a few days later, all was forgiven and the rally resumed.

There were certainly reasons to suspect bears might finally get their time in the sun last week. Not only were protests in Libya causing a sudden re-pricing of global risk, but higher oil prices were believed to threaten the nascent U.S. economic recovery - higher gasoline prices would amount to around a $50 billion tax - and it was reported that housing prices fell for a sixth straight month in December.

Yet at the end of the day, what really changed?

Libya is the largest producer of oil in Northern Africa, but that's not saying much. The Organization of Petroleum Exporting Countries (OPEC) - which controls nearly half of the global oil supply - can increase production to make up for the temporary loss of Libyan oil. And in the United States, supply is not even close to a being problem: Oil storage tanks in the Midwest and Southwest are actually overflowing, which is what had kept West Texas Intermediate crude prices so low relative to the Brent price paid in Europe.

[Editor's Note: Money Morning Contributing Writer Jon D. Markman has a unique view of both the world economy and the global financial markets. With uncertainty the watchword and volatility the norm in today's markets, low-risk/high-profit investments will be tougher than ever to find.

It will take a seasoned guide to uncover those opportunities.

Markman is that guide.

In the face of what's been the toughest market for investors since the Great Depression, it's time to sweep away the uncertainty and eradicate the worry. That's why investors subscribe to Markman's Strategic Advantage newsletter every week: He can see opportunity when other investors are blinded by worry.

Subscribe to Strategic Advantage and hire Markman to be your guide. For more information, please click here.]

Source :

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in