March Marked the End of Rehab for Stock Market Prices

04/02/2013 by Alex Carrick

March 2013 was a month to circle with a colored marker for North America’s major stock market indices. Both the Dow Jones Industrial average (at a level of 14,585) and the S&P 500 (reaching 1,570) set new all-time highs.

The DJI index features a limited number (30) of high-profile firms while the S&P 500 is more broadly based. Therefore, it can only be concluded that the strength in share prices is well represented across a wide spectrum of mainly U.S. companies.

NASDAQ (which “speaks” for high-tech firms) also performed well, reaching a 52-week high on March 28. But it still needs to climb another 44% before reaching the peak it achieved in the heady days of the dot.com boom.

However, February 2000’s unrealistically high level of 4,696 for the NASDAQ index was followed by a calamitous drop (-75.0%) to 1,172 in September 2002 during the subsequent dot.com collapse.  

The Toronto Stock Exchange (TSX) is presently inching forward, hampered by a resource sector in which commodity prices are continuing to “under-whelm”.  

In the 2009 recession, $10 trillion in stock market value was wiped out in North America. That devastating loss of capitalization among private sector firms has now been largely restored.

The DJI and the S&P 500 have exited rehab. Their constituent firms can now look to the future as opposed to nursing their wounds.  

At March 2013’s month-end closing, all three major U.S. indices had at least doubled their value versus February 2009, which was when they all most recently touched bottom.

NASDAQ is +137% when compared with its trough in the recession. The S&P 500 is +114% and the DJI is +106%. The TSX is also up significantly, +57%, but not as much as the other three.

Why are the U.S. stock market indices doing so well? The world economy is hardly busting out of the gate.

But the overall outlook does seem to be picking up, with the U.S. housing market expanding again and Europe managing to contain its periodic bouts of debt mismanagement.

There’s another reason that’s a little less obvious, but does elicit an “of course” response once mentioned.  

It can be summarized in one word, dividends.

Ten-year government bond yields in both the U.S. and Canada are miniscule, around 2.00%.

The same can be said for the rate (also around 2.00%) offered on five-year locked-in guaranteed investment certificates (GIC) by the major banks.

With a stock purchase, one has the opportunity for both capital appreciation and a decent quarterly dividend payment.  

As recorded in the Globe and Mail’s Report on Business, the average dividend yields for stocks in the major indices are as follows; the TSX, 3.0%; the DJI, 2.4%; S&P 500, 2.1%; and NASDAQ, 1.5%.

The strength in the three major U.S. stock market indices has all occurred since the beginning of this year. With March 2012’s closing values as a starting point, they declined from 6% to 10% through May of last year, returned to being at par by year-end, and have moved up between 8% and 12% since then.

On a year-to-date basis, the DJI is +11.3%, the S&P 500 is +10.0%; and NASDAQ, +8.2%. The TSX is trailing at +2.5%.

How do those percentage changes compare with some of the other major indices around the world? Since the end of last year, Tokyo’s Nikkei index has shown exceptional appreciation, +18.7%.

London’s FTSE 100 index has also done well, +8.7%. And the Stoxx Europe 600 Index (SXXP), representing companies in 18 countries across the “pond”, is +6.0% year to date.

Some of the other high-profile share-price indicators have not been as fortunate. Both the Shanghai Composite, -1.4%, and Hong Kong’s Hang Seng index, -1.6%, have declined.

The iShares MSCI emerging markets index (EEM) is -3.6% and its subset for Asia (EEMA) is -3.8%.

Do the latest numbers on the U.S. economy support the level of optimism suggested by America’s stock market indices?

2012’s fourth quarter gross domestic product (GDP) growth rate was recently revised upward to +0.4% by the Bureau of Economic Analysis (BEA). The Q4 result was originally reported as a 0.1% decline quarter to quarter. A month later, it was altered to a slight increase, +0.1%.

The latest figure (+0.4%) is the second revision. A month from now will come the preliminary estimate of this year’s first quarter GDP growth rate.

The latest numbers on manufacturing are showing some (hopefully temporary) fatigue, but consumer spending – driven by employment and income gains – is continuing to boldly explore new terrain.

Stock exchanges - performances of key indices - March 28, 2013
INDEX 52-WEEK LOW 52-WEEK HIGH YEAR AGO
(MAR 30, 2012)
MONTH AGO
(FEB 28, 2013)
Latest Month-end Closing Prices
(MAR 28, 2013
  PER CENT CHANGE,
LATEST VERSUS
52-WEEK LOW 52-WEEK HIGH YEAR AGO MONTH AGO
Dow Jones Industrials
NYSE (^dji)
Jun 4 12 12,035 Mar 28 13 14,585 13,212 14,054 14,579 21.1% 0.0% 10.3% 3.7%

S & P 500
NYSE (^gspc)

Jun 4 12
1,267
Mar 28 13 1,570 1,408 1,515 1,569 23.8% -0.1% 11.4% 3.6%
NASDAQ
(^ixic)
Jun 4 12
2,727
Mar 28 13 3,270 3,092 3,160 3,268 19.8% -0.1% 5.7% 3.4%
S & P/TSX Composite
TSX (^gsptse)
May 18 12 11,281 Mar 12 13 12,905 12,382 12,822 12,750 13.0% -1.2% 2.9% -0.6%
Sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Table: Reed Construction Data – CanaData.
Latest-year performances of key stock market indices
Latest-year performances of key stock market indices
*Each month's closing figure versus the March 30, 2012 closing figure for the index.
The Key Stock Market Indices are:
1) New York Stock Exchange - Dow-Jones Industrials (30);
2) New York Stock Exchange - Standard and Poor's (S & P) (500);
3) National Association of Securities Dealers Automated Quotations - NASDAQ Composite Index;
4) Toronto Stock Exchange - S & P/TSX Composite.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: Reed Construction Data – CanaData.
Performances of key stock market indices since most recent trough
Performances of key stock market indices since most recent trough
*Each month's closing figure versus the February, 2009 closing figure for the index. February 2009 was the most recent trough for all 4 indices.
The Key Stock Market Indices are:
1) New York Stock Exchange - Dow-Jones Industrials (30);
2) New York Stock Exchange - Standard and Poor's (S & P) (500);
3) National Association of Securities Dealers Automated Quotations - NASDAQ Composite Index;
4) Toronto Stock Exchange - S & P/TSX Composite.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: Reed Construction Data – CanaData.
S & P/TSX Composite
Toronto Stock Exchange
S & P/TSX Composite
New York Stock Exchange - Dow-Jones Industrials (30)
New York Stock Exchange - Dow-Jones Industrials (30)
New York Stock Exchange - Standard and Poor's (30)
New York Stock Exchange - Standard and Poor's (30)
NASDAQ Composite
(National Association of Securities Dealers Automated Quotations)
NASDAQ Composite
The charts show month-end closing figures.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Charts: Reed Construction Data – CanaData.