S&P 500 P/E Ratio

The S&P 500's P/E ratio has been seeing some pretty rapid expansion this year as the market has charged higher.  As shown below, last year at this time, the S&P's trailing 12-month P/E ratio was below 14.  Now it's up to 16.13.

While the one-year P/E ratio chart above looks pretty alarming, a longer term chart looks much less so.  Below is a chart of the S&P 500's trailing 12-month P/E ratio over the last 15 years.  In the chart, we have pointed out where the P/E ratio stood when the S&P hit its highs back in 2000 and 2007.  As shown, at the March 2000 bull market peak, the S&P's P/E ratio was all the way up at 30.97.  At the market's peak in 2007, the P/E ratio was at 17.52.  Over the last 15 years, the average P/E ratio for the S&P 500 has been 19.58, so at 16.13, the index's valuation is currently 17.62% below its 15-year average.

the Bespoke 50 -- Up 46% Since Inception

One of our most highly anticipated reports over at Bespoke Premium is our weekly "Bespoke 50" list of our 50 favorite growth stocks.  To make the list of 50, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke's proprietary fundamental and technical analysis.  

As of today, the Bespoke 50 is currently up 46.48% since inception versus a gain of 22.81% for the S&P 500 "SPY" ETF.

"The Bespoke 50" is updated weekly every Thursday, and this week's version was just published.  If you're interested in seeing Bespoke's 50 favorite growth stocks, click on the button below to sign up for Bespoke Premium today!

Jobless Claims Rise More Than Expected

After several weeks of better than expected reports, this morning's reading of initial jobless claims for the latest week came in significantly higher than expected (360K vs 330K).  It was also the highest weekly reading since late March.  Initial jobless claims had a been a bright spot over the last several weeks even as most other data was weaker than expected, so today's report was a disappointment for bulls.

In spite of the big jump, the four-week moving average only saw a minimal increase, rising from 338K to 339.3K, so the downtrend in claims is far from broken.

Finally, on a non-seasonally adjusted basis, initial jobless claims rose to 318.2K from 302.8K last week.  This is the lowest weekly reading for the current week of the year since 2007, and well below the historical average of 345K going back to 2000.  All in all, today's jobless claims report was more negative than positive, but one week does not make a trend.

Bullish Sentiment Drops for First Time in Five Weeks

Even though the S&P 500 kept trucking to new highs this week, investor sentiment actually turned a little less bullish.  In the latest survey from the American Association of Individual Investors, bullish sentiment dropped from 40.8% down to 38.5%.  At current levels, bullish sentiment remains slightly above the average of 37.8% that we have seen since the start of 2009.  Although you wouldn't expect bullish sentiment to decline when the market is rallying, keep in mind that sentiment had improved in each of the prior four weeks, and nothing goes up forever.  Right, stock market?

Ugly Charts

It doesn't get much uglier than the three charts below.  Since their highs in 2011, commodities like gold, silver, and oil have all been in relentless downtrends with lower high after lower high.  While the ETFs for all three commodities saw rebounds in the second half of April, the rallies have all since fizzled and resulted in lower highs.  While GLD still is still about 2.5% above its mid-April closing low, SLV made a new multi-year low on a closing basis today.  There's always a bear market somewhere.

Bespoke Wealth Management Services

While most of our readers are aware of our reseach services, many are unaware that we have a money management division as well.  Over at our new Bespoke Premium website, we have a Wealth Management section that provides a detailed description of the investment tools and methods that we put to work for our clients.  If you're looking for a new advisor to manage your portfolio, be sure to check it out.  You can visit the section at the following link: https://www.bespokepremium.com/wealth-management/.

S&P 500 Sector Trading Range Charts

Below is a look at our trading range charts for the S&P 500 and its ten sectors.  In each chart, the blue shading represents the sector's "normal" trading range, which is between one standard deviation above and below its 50-day moving average (white line).  The red zone represents between one and two standard deviations above the 50-day, and vice versa for the green zone.  Moves into or above the red zone are considered "overbought," while moves into or below the green zone are considered "oversold."  

As shown, the S&P 500 has pretty much been trading in overbought territory all year now, and the index is currently at its most overbought levels in more than a year.  Stocks and indices can stay overbought for a long time, but historically they have not remained as extended as the S&P is now for too long.  We would expect some sort of cool down in the coming days.  

Nine of ten sectors are currently overbought as well, with Utilities the one lone holdout.  Utilities had been one of the big outperformers up until recently, but the shift out of defensives and into the more cyclical areas of the market has seen the Utilities sector move down to its 50-day.  While nine of ten sectors are overbought, seven of ten are actually two or more standard deviations above their 50-days (similar to the S&P 500 as a whole).  Financials, Industrials, Health Care and Consumer Discretionary are the most extended, and they've all been on remarkable runs for pretty much the last twelve months.  Interestingly, the Technology sector, while overbought, has yet to take out its September high.  Apple remains the main cause of this.  

Looking for more in-depth sector analysis?  Check out our weekly Sector Snapshot over at Bespoke Premium. 

2013 and Q2 Country Returns

Below is a list of 2013 and quarter-to-date stock market returns for 77 countries around the world.  Of the 77 countries shown, 60 are in the green for the year, while 17 are in the red.  As shown, Japan is now up the most of any country with a YTD gain of 45.22%.  Japan is already up 21.76% in the second quarter as well.  This gain of 21.76% for Japan doesn't even rank it first for the second quarter, however.  Greece is actually doing the best of any country in the second quarter with a gain of 28.13%.  Dubai ranks second for the quarter with a gain of 25%.  

On the downside, Peru has been the worst country so far this year with a decline of 15.73%.  The Ukraine ranks second to last with a decline of 10.44%, followed by Colombia at -9.8%.  Two BRICs round out the worst five -- Brazil is down 9.47% in 2013, while Russia is down 8.67%.

Of the G7 countries, the US is up the second most behind Japan with a YTD gain of 16.05%.  The UK ranks third at 13.49%, followed by Germany (9.85%) and France (9.37%).  Canada is up the least of the G7 countries with a very small YTD gain of 0.50%.  Of the BRICs, India is doing the best in 2013, but the country is up just 4.05% -- not what most investors expect from emerging markets when stocks are rallying like they have lately.

Gasoline Inventories Rise More Than Expected.

Today's release of weekly energy inventories from the Department of Energy (DoE) showed an unexpected decrease in crude oil inventories and an unexpected build in gasoline stockpiles.  In the crude oil space, traders were expecting inventories to rise by 450K barrels, but actual inventories declined by 624K barrels.  Even with this unexpected decline, though, current inventories are at their third highest reading ever, and well above the historical average.

While crude oil inventories declined, gasoline inventories showed an unexpected rise.  While traders were looking for a decline of 1.1 million barrels, actual inventories rose by 2.588 million barrels.  This represented the largest weekly increase since the first week of January.  This week's increase came just in time as it helped to ease some of the tightness that had been building in the supply of gasoline relative to average ahead of summer driving season.

Weaker Than Expected Empire Manufacturing

Bulls looking for some confirmation of recent better than expected economic data did not get it this morning from the Empire Manufacturing report (or for that matter, Industrial Production and Capacity Utilization).  While economists were forecasting the headline reading to increase from +3 to +4, the actual reading came in weaker than expected at -1.4, and it represented the lowest reading since January.

This month's reading showed broad based weakness as seven out of the ten subcomponents were negative and none of the categories showed an increase versus April's reading.

While Prices Paid currently has the highest reading at 20.5, it also saw the largest decline on the month as it was at a level of 28.4 last month.  After Prices Paid, the next largest decline came in the Average Workweek, which fell from 5.7 in April to negative 1.1 in May.  The decline in the average workweek comes on the heels of the Non-Farm Payrolls report two weeks ago, where the average workweek also showed a sizable decline.  It is still early, but this could be an early indication that employers are cutting hours in an effort to stay below the thresholds that would require providing health coverage under the Affordable Care Act.

The charts below show the historical readings of the headline Empire Manufacturing report (top chart) and the outlook for Technology and Capital Spending (bottom chart) going back to 2001.  As shown in the top chart, the Empire Manufacturing report has been making a series of lower highs since the initial spike off the 2009 lows.  While the index seems to always bounce at similar levels (around negative 10), each subsequent bounce has been less robust. This is a trend that has also been evident in the outlook for Tech and Capital Expenditures.

S&P 500 Stocks Farthest Above 50-DMAs

The market is on quite a run right now, and it has pushed 90% of the stocks in the S&P 500 above their 50-day moving averages.  Below is a list of the 40 stocks in the index that are the farthest above their 50-days at the moment.  Keep in mind that 10% above the 50-day is pretty high, so the fact that all of the stocks shown below are more than 11.5% above their 50-days is pretty crazy.

As shown below, Advanced Micro (AMD) tops the list at more than 50% above its 50-day!  First Solar (FSLR) ranks second at 44.58% above, followed by Regeneron Pharma (REGN), GameStop (GME) and Actavis (ACT).  Other notables on the list include Netflix (NFLX), JC Penney (JCP), Biogen (BIIB), Whole Foods (WFM), Coach (COH), Disney (DIS) and Yahoo! (YHOO).

While the S&P 500 is up 15.5% year to date, the average stock in the index is now up 18.07%, meaning an equalweighted index of the 500 names is doing better than the regular cap-weighted index.  Below is a list of the 40 best performing S&P 500 stocks year to date.  Netflix (NFLX) currently ranks first with a huge gain of 150.98%, followed by Best Buy (BBY), Advanced Micro (AMD), Micron (MU) and Celgene (CELG).  Other notables on the list of 2013's big winners include Biogen (BIIB), Hewlett Packard (HPQ), TripAdvisor (TRIP) and even Campbell Soup (CPB).

S&P 1500 Most Heavily Shorted Stocks

Short interest figures for the end of April were released late last week, and below we provide a table of the stocks in the S&P 1500 with the highest short interest as a percentage of float.  Topping this month's list are shares of Blyth (BTH), which has more than two-thirds of its free-floating shares sold short.  While BTH may not be a household name, there are plenty of more recognizable names on the list, including Coinstar (CSTR), JC Penney (JCP), Gamestop (GME), SUPERVALU (SVU), 3D Systems (DDD) and US Steel (X).

For the 25 names listed below, we have also calculated their performance since 4/30.  To bring home the point about how hard it has been to be short the market in recent weeks, only three of the stocks (BTH, CRR, and COCO) are down so far in May.  Overall, the average performance of the stocks on the list is a gain of 6.75%, which is nearly three times the gain of the overall S&P 1500 (2.33%).  This doesn't even include shares of Tesla (TSLA), which is up 57% so far in May.  While the stock has more than 40% of its float sold short, it is not currently a member of the S&P 1500.  Needless to say, unless the market changes course in the coming weeks, a lot of bearish portfolio managers may find themselves with dwindling assets under management or completely out of a job come Summer.

High Yield Yields Less Than Treasuries Five Years Ago

The chart below is from last week's Bespoke Report newsletter, and it shows the average yield to maturity on the Merrill Lynch High Yield (Junk) Master Index.  At a current level of 5.24%, investors have never been paid less to own high yield debt.  Yields are so low, in fact, that five years ago the yield on the 10-Year US Treasury was higher than the current yield on junk bonds.  In the chart below, the red dots on the blue line represent periods going back to 2000 where the yield on the 10-year US Treasury was higher than the current yield on the High Yield Master Index.  With yields this low, high yield bonds are anything but high yielding.

S&P 500 Sector Breadth Levels

As of this morning, 88% of S&P 500 companies are trading above their 50-day moving averages.  This is a very high reading, but it's not quite as high as the reading we saw back in January.  

Looking at the ten major sectors, the Consumer Discretionary has the highest percentage of stocks above their 50-days at 99%.  Only one more percentage point to go!  Financials ranks a close second at 98%, followed by Consumer Staples (90%), Industrials (87%) and Health Care (87%).  Energy has the lowest reading at 77%, but 77% is obviously not a weak reading.  And while 87% of Utilities stocks are above their 50-days, the reading has been falling instead of rising over the last week or so.  Utilities are down once again this morning as investors shift out of high dividend paying defensive stocks.

Still Bullish

There were more bulls than bears in our weekly market poll for the second straight week.  As shown below, 53% of respondents said the S&P 500 would be higher one month from now, while 47% said the index would be lower.  This is the first time since mid-January that we've had two weeks in a row of more bulls than bears.  Pretty remarkable given the gains we've seen so far this year.