Market Preview: Lucky 13,000?
The Dow Jones Industrial Average moved past the 13,000 mark in intraday trading on Tuesday, but the blue-chip index, up 6.1% so far in 2012, couldn't hold it through the close. Not to worry though, the trend is still pretty friendly with the Dow up three days in a row, and in five of the past six sessions.
Big, round numbers always get a bit of extra attention, and given how much of the market is driven by psychology, that makes some sense. As has been mentioned ad nauseam, this was the Dow's first trip into the rarified air above 13,000 since May 20, 2008, before Lehman Bros. failed and the financial crisis really and truly kicked in.
The folks at Dow Jones Indexes were ready with all the pertinent facts -- it took 127 trading days to revisit 13,000 from the prior first close above 12,000 -- and it's worth noting that the run to 14,000 from the Dow's first close above 13,000 last time around was a speedy 59 trading days, the second fastest 1,000 point advance in the index's history.
Whether this market has that kind of momentum remains to be seen. The skepticism is definitely building, but that's been the case for a few weeks now, and the indexes keep churning higher. Maybe 13,000 will be a lucky number, bringing enough money off the sidelines to carry stocks another leg higher.
Meanwhile, Citigroup provided a few reasons for investors to not chase the tape on Tuesday, prior to the Dow's flirtation with 13,000. Fourth-quarter reporting season is waning and the firm thinks the disconnect between falling profit outlooks and rising stock prices is cause for concern.
"While equities have surprised many with an impressive start to 2012, the revision momentum for earnings have proven to be disappointing, with mixed forward profit guidance amidst uncertainty surrounding European economic activity, corporate margins, and the impact of rising oil prices," Citigroup said. "Typically there is a tighter relationship between earnings and the S&P 500 and the divergence is worrying in the short term."
That said, the firm is sticking with its year-end target of 1425 for the S&P 500, which would represent 4.6% upside from Tuesday's close at 1,362. That's on top of the 8.2% surge already seen in 2012.
"Valuation is still compelling as are indications from implied long-term earnings expectations and the corporate credit cost backdrop," Citigroup said. "Thus, one should not confuse the near-term concerns with ongoing bullishness for 2012 and buying on weakness makes sense rather than chasing the tape."