While there was no primary driver of today's opening move, just some general happiness about strength in equity markets in Europe, U.S. stocks gapped up through the resistance of the old S&P 500 highs on 1531, and then launched a second leg higher to the upper 1530s/low 1540s on a good ISM non manufacturing report. As we have seen many times the past four years when there is a heavy resistance level, rather than being taken care of during the regular session it is surpassed in the premarket, although usually there is some news item being the driver. The Dow Jones Industrial Average made a new all time high which was all the financial media was focusing on but the action in the other indexes are more pertinent. The S&P 500 added 0.96% and NASDAQ 1.32%.
The U.S. non-manufacturing sector expanded at a slightly faster pace last month as demand increased, according to data released Tuesday by the Institute for Supply Management. The ISM's non-manufacturing purchasing managers' index rose to 56.0 in February from 55.2 in January. Any number over 50 is expansionary.
With today's move both the S&P 500 and NASDAQ are back in their ascending channels from mid November; the S&P 500 - as mentioned above - took out the mid February highs as well just below 1531. This can now be used as a support level on any pullbacks.
Gains were pretty widespread among stocks, and the past two sessions there has been a return to the more offensive parts of the market like financials, industrials, housing, and consumer discretionary - which had been laggards while the defensive groups led the charge the past few weeks.
Transports had been the one offensive group which had been acting as well as the defensives and continued a very impressive multi month run.
While we continue to see little participation among the major commodities markets, right now the market doesn't care. Today's action sets up an interesting reaction to Friday's labor report as there is now a new breakout level to defend.
Via Bespoke Invest blog, here is some data on the DJIA new highs.
At 14,253.77, the DJIA closed today at an all-time high for the first time since 10/9/07. That stretch of 1,973 days is the sixth longest stretch the DJIA has ever gone without closing at a new all-time high. It is also the second time in the last decade that the index has gone more than two years without closing at a new all-time high.
Even though we have now seen two periods in the last decade where the DJIA has gone two or more years without closing at an all-time high, these periods of drought are very rare. Going back to 1900, there have now only been ten periods where the DJIA went two or more years without a new high. The longest of these droughts occurred from 1929 through 1954 when the index went 9,211 days without a new high.The table below highlights each of the prior periods where the DJIA went two or more years without closing at a new all-time high (charts of each period are included on pages two and three). For each period, we also show how the index performed over the following one, three, six, and twelve months. We also show what the maximum drawdown and gain was over each of those periods.Looking at the average returns, there is also not much credence to the argument that you should not be buying equities when the DJIA is trading at all-time highs. Over the following one, six and twelve months, the DJIA has seen better average returns. Furthermore, while the average maximum drawdown is a decline of 8.5% over the next twelve months, the magnitude of the average maximum gain is more than twice that at 20.34%. In fact, there were only three periods where the maximum drawdown over the next twelve months exceeded the maximum gain. All in all, the returns summarized below are not significantly above average, but they are more positive than negative nonetheless.
