Taking Stock



By Tony Crowell
By Tony Crowell
S&P Hits 2000; What’s Next?

Market professionals use the Standard & Poor’s index of 500 stocks rather than the popular Dow Jones Industrial package of 30. Still, if you ask one of them how the market is doing, she will probably respond with the change in the Dow. The DJIA has greater historical roots, going back to 1896, a factor more useful to students of financial history than to someone actively managing stock portfolios.

The S&P 500 weights stocks by the size of their market cap, led by Apple (AAPL-$102), while the Dow weights simply by price, which gives higher impact to high priced stock. Price moves in IBM (IBM-$192) thus currently have almost eight times the effect in the Dow of those of General Electric (GE-$26) but are almost the same in the S&P as their market caps are similar.

The S&P usually outperforms as it includes faster growing healthcare and tech companies, although the Dow won in 2011. This year, it’s up 8% and the Dow 3%. Last week, with the S&P at 1992, I wrote that the S&P would make a few headlines when it broke through the 2000 barrier. The S&P broke this round number but the headlines were few, less than the Dow’s first close above 17,000 on July 3.

This inattention is attributable to the annually reduced trading volume in August. Wall Street traders never lose sight of the market and I suspect their traditional August relative inactivity is because their psychiatrists are on vacation. Labor Day marks the unofficial end of summer and stocks have scored mild gains two-thirds of the time on the two days following this holiday.

That looks like a good bet after the S&P’s recent record close. Two weeks after each 100-point milestone, the S&P has been ahead four of out five times, averaging a 3.6% gain after six months. Early last month, it sagged, dropping 4% on worries about world turmoil and Federal Reserve policies. It’s made that back but has room to run. Since 2012, its average gain after a 4% dip has been 12%.

The recent series of record closes on both the S&P and the Dow seem to have awakened little public interest. While this is probably attributable to vacation distractions and tepid trading volumes, I am still reminded of the concerns that develop when parents realize that the children have been unusually quiet.

Despite new records in stock indices, measures of investor attitudes show persisting levels of anxieties. That’s healthy to some degree as market tops occur when investors are seized by euphoria. There will undoubtedly be some pressures in several weeks as the Federal Reserve marches closer to interest rate increases; meanwhile, most signals are favorable.

My strategy continues. Stocks in larger companies with solid growth prospects will keep investors on course. Intel (INTC-$34) is an excellent example. The company is the world’s largest maker of semiconductors, with the majority of its sales still directed toward PC’s. Its leadership slipped as the entire sector shifted toward mobile devices but Intel’s very large research capabilities are restoring growth.

Analysts continue to increase estimates for the company’s earnings, currently looking for $2.18 a share for 2014, up 15%. That’s strong growth for a company with over $50 billion sales and also a quite reasonable valuation on its stock. Its dividend record is remarkable, especially for the technology sector, with a 2.6% yield and ten straight years of increases.

Canadian Natural Resources (CNQ-$43), my newest buy, also has an outstanding dividend record with a 2.1% yield on twelve straight years of dividend bumps. Based in Calgary, it is a substantial oil and gas producer with operations in North America, the North Sea and offshore Africa. Sales last year were $16 billion and are forecast to exceed $21 billion this year. 2014 earnings should be around $3.90, up over 70%. Its outlook is favorable, as it is for accelerating overall economic recovery, which will support further market progress, perhaps to S&P 2100 by yearend.


Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622




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