Can anything keep this market down? Yesterday, fears of a falling dollar helped turn gains into pain. But even with the dollar falling again, the three major benchmarks are heading higher.
The S&P 500 has risen 0.3% to S&P 500 2844.97 at 12:36 p.m. today, while the Dow Jones Industrial Average has gained 171.93 points, or 0.7%, to 26,424.05. The Nasdaq Composite has advanced 0.3% to 7437.20. The U.S. Dollar Index has fallen 0.5% to $88.73.
You can find plenty of reasons for this continued bullish tape. Earnings. Sentiment. The economy. In regards to the latter, however, the reliably pessimistic David Rosenberg, chief economist at Gluskin Sheff, points out that the economy grew at a 5% clip for two consecutive quarters in 2014–without stimulus from hurricane rebuilding and other factors to juice growth. And while he acknowledges that growth has been good, his “enthusiasm is tempered by the extremely low quality of this economic growth.” Surging markets have caused wealthier households to “feel so rich” that they save less and spend more. And without that spending, Rosenberg says, growth would be closer to 1%, not 3%. “As we saw in 2000, and again in 2007, this is a classic late-cycle development.” he says.
But how late? — Ben Levisohn
MGM: What Difference Do Four Weeks Make?
Shares of MGM Resorts International (MGM) are lower on Thursday, following the casino operator’s announcement of a delay at its Macau property. The announcement, however, might just be one bad card in a good hand.
MGM said there would be a two- to four-week delay in the opening of MGM Coati, along with news that it’s been awarded 125 new tables for the property when it does open (although that also caused some concern, giving the timing of MGM’s license renewals.)
Instinet’s Harry Curtis and his team aren’t concerned, however. After speaking with management he reiterated a Buy rating on the stock, writing that “the delay is not a meaningful issue for the company.” Curtis attributes it to governmental approval backlog, to a degree, and while it still would have possible to open on Jan. 29 as planned, he agrees with the plan to delay the opening, given that it’s ultimately inconsequential for a “building that should outlive us all.” He still expects MGM to take reservations for the Chinese New Year, in February, given the big revenue opportunities associated with the holiday.
We’re inclined to agree. Shares of MGM recently broke out of range it had been stuck in for about six months, and even after today’s 1.7% decline to $36.99 at 11:33 a.m. has still gained 11% in January.
We’d call that a winning hand. — Teresa Rivas
3M: A Timely Upgrade
Upgrading a stock before news is announced takes guts, in the same way that it does when one of our writers goes out on a limb to recommend a company before an announcement. So kudos to Hilliard Lyons analyst Spencer Joyce, who dismissed concerns about valuation and upgraded shares of 3M (MMM) yesterday before the company released earnings this morning.
And what earnings they were. 3M said it earned $2.10 a share on revenue that rose 9% year over year to $7.99 billion. Analysts expected earnings of $2.03 on revenue of $7.85 billion. For the full year, 3M guided for earnings of $10.20 to $10.70 a share, up from $9.60 to $10 previously, and above the $9.90 consensus.
Some analysts are still concerned about valuation. CFRA Research’s Jim Corridore, for one, argues that the “current premium valuation will restrict upside to the shares over the next year.”
Perhaps. Today, though, 3M, already of one of the Dow Jones Industrial Average’s best-performing stocks in 2017, has gained 2.8% to $254.53 at 11:57 a.m.
So much for those valuation concerns. — T.R.
Many Wall Street strategists are expecting the S&P 500 to hit 3000 this year. But with the index up 6.4% this year–and less than 6% away from that target–some are wondering just how high it can go.
Case in point: In a report released yesterday, Capital Economics’ John Higgins wondered if the “irrational exuberance” could push the S&P 500 as high as 5000. He notes that at the beginning of the year, the cyclically adjusted price/earnings ratio for the S&P 500 was at 34, similar to where it was at the beginning of 1998. In 1998, the P/E kept rising, topping out at 44 times in December 1999. If the S&P 500 follows a similar path over the next two years, that would put it somewhere between 4500 and 5000. “Since the current late-cycle “melt-up” in the US stock market is increasingly reminiscent of that bubble, it is worth asking how high the S&P 500 would rise if history were to repeat itself,” Higgins writes.
He doesn’t, however, actually expect the S&P 500 to get there. In fact, he expects the index to finish 2019 lower than it is now. “That reason is a slowdown in the US economy, which we expect to start to become apparent later this year,” he writes.
And if it doesn’t? — B.L.