Stock Market Progression Signals Recovery
Great gains move on to more stable investments
The New York Stock Exchange is the barometer that most people go by to gauge the health of the economy. The NYSE also served as the barometer for the recovery of the economy. Beginning last March, the recovery began in earnest according to the numbers on the big board. Investors started feeling more confident and began buying bargain stocks from the financial sectors. The rush for bargains marked the early portion of the recovery. Now, the bargain hunt seems to be over and investors are buying more stocks from across the board. Analysts interpret this progression from bargain hunting in the financial sector to acquisitions across the exchange as indicating a maturity in the recovery process. The overall economy seems to be on a legitimate and sustainable track for long term health.
Standard & Poor’s 500 Index leads the way
The bull market’s coming of age story can be followed by looking at the Standard and Poor’s 500 Index’s performance since last March. The S&P 500 is up 69 percent since then. Those gains are even more impressive because the S&P 500 includes stocks in the financial sector and small cap funds which were hit hardest during the recession. In fact, the financial sector outpaced the overall index performance by double. Investors have migrated out of the financials and into health, telecommunications, large cap funds, and utilities. This indicates that investors believe that all the major gains in the financial sector have been seized, and they are moving on to greener pastures. The bull market is officially off and running.
Past two months sees shift in performance
Health and utilities have led the way for the past two months far out performing the darlings of the early economic recovery: financials and small caps. In fact, the latter are now lagging behind the rest of the S&P 500. High quality stocks like AT&T and Proctor and Gamble are now the most attractive on the board. These stocks have a history of performing well in any economy and provide greater dividends than low quality bargain stocks attractive earlier in the recovery. High quality stocks tend to out -perform the average by 20% in a maturing bull market.
Price –to- earnings ratio still attractive in large cap funds
Price-to-earnings ratios are looked at very closely by investors to decide whether a particular stock is either undervalued or overvalued. The ratio is calculated by dividing the per share market value of the company by the earnings per share. The ratios for many high quality stocks remain below historic averages. This means that investors have the opportunity to realize significant earnings on some of the best performing stocks on the board. Large cap funds can offer investors long term gains because they deal in the best performing stocks over the long run. The mature bull market offers stable earnings and ample opportunities for long-term gains. This migration from quick bargains to high quality stocks bodes very well for a continued economic recovery.