S&P rally to­ward record broad­ens as equal weights climb

The Pak Banker - - COMPANIES/BOSS -

The Stan­dard & Poor’s 500 In­dex (SPX), the bench­mark mea­sure of U.S. eq­ui­ties, is ap­proach­ing a record al­most 5 1/2 years af­ter peak­ing and two years af­ter most stocks in the gauge fully re­cov­ered from the worst bear mar­ket since the 1930s.

The in­dex has climbed 130 per­cent since March 2009, adding $10 tril­lion to the value of Amer­i­can eq­uity as it erased losses from the credit cri­sis. The ma­jor­ity of com­pa­nies sur­passed their pre­vi­ous highs by April 2011, ac­cord­ing to data com­piled by Bloomberg. The S&P 500 Equal Weighted In­dex, which counts each com­pany in the in­dex equally in­stead of by their mar­ket value, in­creased 192 per­cent from the bot­tom.

Un­like past bull mar­kets, where a sin­gle in­dus­try dom­i­nated, all groups have im­proved in this rally as the U.S. econ­omy re­cov­ers. The breadth of the re­bound can be seen in the S&P 500’s weight­ings, where none of the 10 in­dus­try mea­sures rep­re­sents more than 18 per­cent of the in­dex. In 2000, tech­nol­ogy com­pa­nies made up 35 per­cent of the gauge, and in 2006, fi­nan­cial stocks ac­counted for 22 per­cent.

“The breadth of this rally is rather re­mark­able,” Stephen Wood, who helps man­age about $152 bil­lion as the New York­based chief mar­ket strate­gist for North Amer­ica at Rus­sell In­vest­ments, said by tele­phone. “It speaks to the fact that four years ago the mar­kets were pric­ing in the end of the world, but the end of the world was not nigh. So we’ve seen this sig­nif­i­cant but drawn- out re­cov­ery across the board in eq­ui­ties — small, medium, large, de­fen­sive, dy­namic, value, growth.”

The S&P 500 climbed 0.7 per­cent to 1,558.71 yes­ter­day to pull within 0.5 per­cent of the all-time high it reached on Oct. 9, 2007. The S&P 500 Equal Weighted In­dex, which gives each com­pany the same con­tri­bu­tion re­gard­less of size, sur­passed its record on April 28, 2011. That month, the num­ber of S&P 500 com­pa­nies trad­ing above all-time highs climbed to more than half, Bloomberg data show.

Ap­ple Inc. (AAPL), the iPhone maker val­ued at $424.5 bil­lion, gets the same credit in the equal-weighted mea­sure as for-profit ed­u­ca­tor Apollo Group Inc. (APOL), worth $1.9 bil­lion. About 59 per­cent of S&P 500 stocks have ex­ceeded their pre­vi­ous records set be­fore the bench­mark gauge peaked at 1,565.15 in 2007.

US stocks are close to com­plet­ing a re­cov­ery in the bench­mark in­dex fol­low­ing a 57 per­cent plunge be­tween Oc­to­ber 2007 and March 2009, trig­gered as the col­lapse of the sub­prime mort­gage mar­ket caused the worst Amer­i­can eco­nomic con­trac­tion in seven decades.

Shares of re­tail­ers, restau­rant chains and other com­pa­nies that de­pend on dis­cre­tionary con­sumer spend­ing jumped 231 per­cent since the bot­tom to lead gains in the S&P 500. Gauges of fi­nan­cial com­pa­nies and in­dus­trial shares have al­most tripled, while tech­nol­ogy, com­mod­ity and health-care stocks are up more than 100 per­cent.

Wyn­d­ham World­wide

Corp., CBS Corp., Fifth Third Ban­corp and Gan­nett Co. are among seven com­pa­nies in the in­dex that have surged more than 1,000 per­cent since March 9, 2009.

Stocks re­bounded as the Fed­eral Re­serve pumped more than $2.3 tril­lion into the econ­omy through mon­e­tary eas­ing since 2008, send­ing Trea­sury rates to record lows last year. The S&P 500’s div­i­dend yield, cur­rently at about 2.11 per­cent, has been above the pay­out on 10-year Trea­suries for al­most a year.

Cor­po­rate prof­its have jumped to a record dur­ing the re­bound, with earn­ings for S&P 500 com­pa­nies surg­ing to $100.75 a share last year from $61.83 in 2009.

“The mar­ket is re­flect­ing fun­da­men­tal im­prove­ment, earn­ings growth, rev­enue growth and div­i­dend growth, more than it is price mo­men­tum,” Richard Slinn, a San Fran­cisco-based man­ag­ing di­rec­tor and se­nior in­vestor at JPMor­gan Pri­vate Bank, which over­sees $877 bil­lion, said by phone. “Peo­ple are nat­u­rally kind of hes­i­tant to jump into some­thing they feel like has gone too far, but we dis­agree with that premise.”

The S&P 500 Equal Weighted In­dex un­der­per­formed ver­sus the S&P 500 dur­ing the 1990s bull mar­ket, which was dom­i­nated by ral­lies in larger U.S. com­pa­nies and tech­nol­ogy stocks. The S&P 100 In­dex (OEX), whose av­er­age com­pany’s mar­ket cap is $92.3 bil­lion, in­creased 494 per­cent from Oc­to­ber 1990 to March 2000. That com­pared with the 417 per­cent ad­vance by the S&P 500, whose av­er­age stock’s mar­ket cap is $29.4 bil­lion.

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