In honor of the market’s vaunted new-highs, I thought it would be helpful to add a little dose of reality to the over-hyped CNBC newscasters, who act as though the Dow’s breakthrough is their birthday, Fourth of July and Christmas all rolled into one. Here are a few facts and a bit of comparative analysis about current and past circumstances.
- The Dow’s record high is lonely. None of the other major market indices have reached new all-time highs… not the S&P 500 and especially not the Nasdaq, Russell 2000 or the S&P 400 mid caps. In fact, on a day when the Dow eclipsed its former all-time high, the NYSE and Russell 2000 traded lower. This market phenomenon is known as divergence and it often is the harbinger of bad things to come. At the very least, it demonstrates that the Dow doesn’t have the kind of coattails necessary to bring up the rest of its market constituents.
- The Dow’s all-time high came about six-and-one-half years after its last all-time high. Ironically, Oct. 3 marked the anniversary of the bottom of the 1972-1974 bear market, and it took the market exactly six-and-one-half years to recover. That’s the kind of mathematical coincidence that could make Pythagoras blush.
- More than 70% of the Dow’s components are still 20% off of their all-time high, while 57% are more than 30% below their respective new-high marks.
So you see, all is not well in "Dowville," nor is it all well in the market at large. Yes, oil prices are falling, interest rates are in check, corporate profits are solid and money appears to be migrating from housing and other asset classes into stocks.
Sounds like 2000 to me.