Birchtree
Well-known member
From TWSJ by Scott Patterson, dated 1/30/07, titled: Is an End in Sight for the Dow's Long Run?
By many yardsticks, stocks are getting streteched. Perhaps the most convincing argument: It has been 978 trading days since the Dow Jones Industrial Average has seen a 10% decline from a high, the second longest such run on record, says Ned Davis Research. The Dow has gone 135 trading days without a 2% decline, the longest stretch since 1958.
The Fed's pause in rate increases last summer helped propel the latest leg of the advance. Why the market has risen for more than four straight years is less clear. A stable economy has clearly contributed, and other factors also seem to be helping. A big reason for the gains: a strong run of corporate profits. Another key is low interest rates. Since October 2002, when the rally started, the yield on 10-year Treasury notes has averaged 4.3%, well below the daily average of 7.1% since 1962.
But there's reason to wonder whether these drivers might falter. In the latest round of earnings reports, roughly three times more companies in the S&P 500 have issued cautious guidance than on average, says Thompson Financial. Meantime, the yield on the 10-year note is creeping close to 5%. Last spring, when the yield on the 10-year note topped 5%, the Dow gradually fell 8% over two months. If earnings waver, or if long term rates keep rising, the Dow's long run could end.
Ferdinand has no fear - the GDP tomorrow may surprise and come in at 1.8% as opposed to 3% by consensus. They'll chauk it up to a reduction in auto sales.
By many yardsticks, stocks are getting streteched. Perhaps the most convincing argument: It has been 978 trading days since the Dow Jones Industrial Average has seen a 10% decline from a high, the second longest such run on record, says Ned Davis Research. The Dow has gone 135 trading days without a 2% decline, the longest stretch since 1958.
The Fed's pause in rate increases last summer helped propel the latest leg of the advance. Why the market has risen for more than four straight years is less clear. A stable economy has clearly contributed, and other factors also seem to be helping. A big reason for the gains: a strong run of corporate profits. Another key is low interest rates. Since October 2002, when the rally started, the yield on 10-year Treasury notes has averaged 4.3%, well below the daily average of 7.1% since 1962.
But there's reason to wonder whether these drivers might falter. In the latest round of earnings reports, roughly three times more companies in the S&P 500 have issued cautious guidance than on average, says Thompson Financial. Meantime, the yield on the 10-year note is creeping close to 5%. Last spring, when the yield on the 10-year note topped 5%, the Dow gradually fell 8% over two months. If earnings waver, or if long term rates keep rising, the Dow's long run could end.
Ferdinand has no fear - the GDP tomorrow may surprise and come in at 1.8% as opposed to 3% by consensus. They'll chauk it up to a reduction in auto sales.
