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Courtesy of David Brown, Chief Market Strategist, Sabrient
So why did the Dow drop 275+ points, the S&P 500 32 points and the NASDAQ nearly 53 points The S&P closed at 1253, still above the range-bound area of 1220 to 1120 that had held it captive from August 2 until October 21. Of course I don’t actually know, but I can give you a few clues. First, October had delivered an incredible +13% gain to the S&P 500. One of the best months in history! Last week produced mediocre economic data and an EU plan, while spectacular in goals, had few details or actual deals. And while Q3 continued to deliver solid earnings gains, there were plenty of disappointments. Another clue should have been that the week with all the EU hoopla ended with a paltry 0.5% gain for the S&P on Friday. With no clear progress from EU or the gridlock in our congress over the weekend, a stout round of profit-taking on Monday makes sense. Oil was down and the dollar was up sharply. Neither helps the market generate positive movement.
It would seem that we need specificity from the EU on its resolution of the current Euro crisis. We need our dysfunctional congress to end its gridlock and move our economy forward. Finally, we need the banks to resume lending and the cash-rich corporations to begin spending. Let’s face it: the alternatives to equities right now are the moribund opportunities in the fixed income market or the continually crashing real estate universe.
Market Stats. However, not all is lost. October ended with Net Revisions at 10.8 for the last 30 days for our 100 highest rated stocks, (its highest reading since early August). Even better, the forward quarters estimated valuation score for the same stocks is 6.43 compared to 4.84 back at the market high on May 2, 2011 (nearly a 50% increase). Finally, the secular 5-year forecast for earnings growth of these stocks reached 12.95%/year, the highest since early 2007. Results for the top 300 and 1000 stocks had similar highs.
Last week our own economic releases were barely decent with the 2.5% gain in Q3 GDP leading them. Keep in mind that the first estimate is frequently revised downward. Personal income was…
