(By Jon D. Markman ) We haven't looked at the new high list for some time, so I took a quick look to see what's cooking.
There were quite a few American Depository Receipts (ADRs) for Israel-based companies on the list last week, as well as a lot of U.S. retailers and apparel wholesalers. J Crew Group Inc. (NYSE: JCG) surged to a big new one-year high on Thursday, up 15%, as did shoemaker Skechers USA Inc. (NYSE: SKX), up 14%; and Brown Shoe Co. Inc. (NYSE: BWS), up 3% to a new high. Another new high, with an 18% gain, was recorded by HNI Corp. (NYSE: HNI), which makes office furniture. And of course you know about Amazon.com Inc. (NYSE: AMZN).
What happened to the missing-in-action consumer that the bears have complained about? Makes you wonder.
In the financial-services area, new highs were hit on strong earnings reports by Morgan Stanley (NYSE: MS), The Travelers Cos. Inc. (NYSE: TRV) and Raymond James Financial Inc. (NYSE: RJF)
This is not a small matter: It takes a lot of buying power to move stocks like this up to new highs.
Institutions are coming on board the financials in a big way, validating our point of view – expressed for the past six months – that the Standard & Poor's 500 Index is likely headed to the 1,200 area, which is where stocks were trading when Lehman Brothers Holdings Inc. (OTC: LEHMQ) collapsed and the most acute phase of the financial crisis began last year. The more often we see days like Thursday – where stocks surge following the most minor of dips – the more likely this is likely to happen.
Retailing Rebound is for Real
I realize it's a little bizarre to see retailers performing so well, but all the data that I see supports this move at the most fundamental level. Analysts at ISI Group in New York have done a weekly survey of retailers for two decades. They reported last Monday that over the prior two weeks, their retailer survey results have surged 15%. U.S. retailers are even doing better than ISI's surveys of Chinese sales.
They believe it's likely that chain-store sales, after rising 0.1% year-over-year in September, will rise by a much more than expected 3% in October. And because chain-store sales plunged month-over-month in November and December last year, they're on track to rise 6% year-over-year in December this year – which is way more than expected. Keep in mind that in September, they were already up 5% from their December 2008 low.
ISI reports that there is a correlation of 88% between holiday sales and stock-market performance. The S&P 500 is now up 4% from September, which suggests that holiday sales will advance at a 5% quarter-over-quarter annualized rate.
How can that happen with employment trends so rotten? Well, maybe they're not so rotten. Data continues to show improvement, with temp employment company surveys, manufacturing employment surveys and the Empire State manufacturing reports all moving higher in the past three weeks.
As ISI points out, keep the chronology in mind: At the worst of the recent recession, there were fears of a depression. So companies cut employment more than the gross domestic product (GDP) decline suggested was necessary. If conditions keep improving, managements are likely to feel compelled to lift hiring more than normal. Employment is already increasing in six major economies outside the United States, including Japan, Canada, Korea and Brazil.
Considering that declines have been moderating by around 100,000 jobs per month, ISI analysts say, figure that jobs will decline by 163,000 in October and 63,000 in November, followed perhaps by 37,000 in December and 137,000 in January.
This would further crush arguments by the bears that the U.S. stock-market advance is not supported by fundamentals. If this starts to come into view in a major way in November, once the October jobs figure is announced on Nov. 6, we could be in for a very positive November and December as underinvested managers pour into the market from the sidelines.
I know you've heard this from me for months, but now we're coming to showtime. If it's going to happen, it's going to happen soon. There's probably one more semi-scary decline ahead to shake out the weak hands before the next phase begins.
I'm not saying it's right for this to occur. And I'm not saying I agree with it. But I am saying that it could happen.
And because the public thinks it's impossible, it really has a strong potential to occur.
Tears for Fears
In summary, let me quote from Paul Desmond over at Lowry's Reports, who's been around a few bear and bull cycle in his time.
