Stock Market Climbs To Highest Levels Since 2007

Stocks Continue To Crawl Higher In 2013

Continuing right where the stock market left off last week, stocks spent the first three days of this week moving sideways before resuming their march higher and breaking out for a 1% gain on Thursday and Friday.

2013 continues to be a very giving year to investors from the stock market as this was the third straight week that the market has finished higher.

The stock market has risen steadily ever since the resolution of the Fiscal Cliff on December 31st. The number of market declines have been few and quite shallow so far in the month of January

This week also brought good economic news in both housing and in unemployment. We will comment further on both of these later in this article.

The S&P 500 closed on Friday at 1,486 – which is the highest level since 2007. The S&P 500 is now higher by 120% from it’s financial crises lows that were reached in 2009.

The stock market gained 1.1% for the week. So far in 2013, the S&P 500 is now higher by 4.2%. 

In the Photo Section is a one year chart of the S&P 500 that shows the gains for the past year and for 2013 to date:

(See Chart of The S&P 500 in The Photo Section)

This week was also the beginning of earnings season and thus far most of the companies have been reporting earnings that are better than what Wall Street expected. Approximately 60% of all companies have reported earnings that exceeded Wall Street expectations.

One major exception to companies who have performed better than market expectations is Intel who stock price declined by 6% on Friday. Intel has been facing challenges with the transfer of much of people’s personal computing from PC’s to mobile platforms such as phones and tablets. Much of Intel’s products are tied to the Personal Computer like other “Old Tech” companies such as Hewlett Packard & Dell who’s stock prices also have not done well over the past 12 months.

Economic Reports Continue to Show a Healing Economy

This week saw the release of several economic reports. For the most part  – outside of manufacturing – the reports were positive.

Two reports that showed the most promising results in several years was the Initial Unemployment Claims Report & The New Housing Starts Report.

The Initial Unemployment Claims Report came in a 335,000. The 335,000 Initial Claims were the lowest number of initial unemployment claims since January of 2008.

In the Photo Section is a 45 year chart of the Initial Unemployment Claims Report.

(See the Chart of Initial Unemployment Claims in the Photo Section)

The Initial Unemployment Claims Report is somewhat volatile from week to week so this weeks 4 year low in claims might turn out to be an exception. We will continue to monitor and report on this because – as the 45 year chart shows – Initial claims around 330,000 have been a starting point of an acceleration of job growth coming out of recessions. Hopefully this will once again be the condition here.

The second economic report that was released this week that we would like to highlight is the report on New Housing Starts.

This week it was reported that New Housing Starts rose in December to an annual rate of 954,000 homes. This is the highest level of Housing Starts since June, 2008.

In the Photo Section is a 55 year chart of New Housing Starts. This chart does an excellent job of showing just how unusual and devastating the financial crises eal estate crash was to the economy and most peoples net worth:

(See Chart of The New Housing Starts in The Photo Section)

As you can see from this chart, New Housing Starts have now recovered back to a level that would be at the worse levels of prior recessions over the past 55 years. Actually there is much to be optimistic in this last statement. The current growth and acceleration in New Housing Starts might be just the beginning of a new phase in the housing cycle. And if this turns out to be true then the increase in the construction of new homes has a lot more room to run higher.  Record low interest rates remain the primary cause of the rebound in housing.

It is very promising to see the sharp spike higher in New Housing Starts over the past 18 months to 954,000 on an annual basis. New Housing Starts have now risen by 36% on a year over year basis – this is a very strong year over year performance.

New home construction is vital to the economy because nothing creates and provides more jobs than new home construction. The current economy will be greatly enhanced by the contribution of tens of thousands of new jobs that would accompany the continued expansion in the number of new homes constructed.

Closing Thoughts

As we mentioned last week, the stock markets are very overbought now and after this past week 1% gain even more so. We advise caution for putting fresh money to work at this time with stock markets at six year highs and while currently in this technically overbought condition.

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John Patrick Bray, CPA, is President of Bellevue-based Reliance Investment Management LLC  a Registered Investment Advisor Firm.

This communication reflects the opinions of Reliance Investment Management LLC and is being provided for informational purposes only and is not intended as a recommendation, an offer or solicitation for the purchase or sale of any security referenced herein or investment advice. It is being provided to you on the condition that it will not form the primary basis for any investment decision.  We recommend that you consult with your investment advisor before the purchase or sale of any securities. The information contained herein is of the date referenced and Reliance Investment Management LLC does not undertake an obligation to update such information. Reliance Investment Management LLC has obtained all market prices, data and other information from sources believed to be reliable although its accuracy or completeness cannot be guaranteed. Such information is subject to change without notice. The securities mentioned herein may not be suitable for all investors.