Dow Hits Record High as Markets Are Undaunted By Tepid Economic Growth,
Political Gridlock
2013-03-06


Dow Hits Record High as Markets Are Undaunted By Tepid Economic
Growth, Political Gridlock

By Jia Lynn Yang
March 6 (Washington Post) -- The benchmark Dow Jones
industrial average reached an all-time high Tuesday, underscoring
the contrast between corporate America's rapid recovery since the
financial crisis and the rest of the country's ongoing struggle
to regain its footing.
More than four years later, the crisis seems a distant
memory for a number of big U.S. companies that are reporting
record profits, even though many Americans remain jobless, wages
have stagnated and Washington remains paralyzed in the face of
the country's tepid economic growth.
At closing, the Dow was up 125.95 points, or 0.89 percent,
to 14,253.77, breezing past both the intraday and closing records
that were set in October 2007, just before Wall Street nearly
imploded and dealt a serious blow to the U.S. economy.
It was also notable that after days of flirting with the
all-time high, the Dow surged past its record largely because of
news from China, where leaders said they would maintain a growth
target of 7.5 percent this year and pledged to plow more money
into the country's economy. By contrast, forecasters expect the
U.S. economy to grow just over 2 percent, with some warning that
the across-the-board budget cuts known as the sequester could
further dampen growth.
As companies rely more on earnings overseas, their fortunes
have become more disconnected from the state of the U.S. economy.
With the United States and Europe still seeing slow growth, many
investors for the first time are expecting still-developing
countries such as China to pull the rest of the world out of its
economic funk.
The Dow, this country's most famous index, tracks the stock
prices of 30 multinationals, including iconic companies such as
IBM, General Electric and JPMorgan Chase.
IBM, which currently carries the most weight in calculating
the Dow Jones average, has seen its stock rise more than
80 percent in the past five years. More than half the company's
profits in 2011 came from overseas.
Even a company such as Hewlett-Packard, which is also on the
index and has struggled in recent years, has seen its shares jump
more than 40 percent this year.
The Dow's record high confirmed that the markets have
remained unfazed in the past year by the ongoing political
paralysis in Washington. As lawmakers and President Obama lurch
from one fiscal deadline to the next — from the debt-ceiling
standoff in 2011 to the "fiscal cliff" to the steep budget cuts
triggered last week — the markets have soldiered on with hardly a
bump.
"The stock market and the American public are looking at the
political theater with a jaundiced eye," Ted Weisberg said from
the New York Stock Exchange, where he has been a trader on the
floor for more than four decades.
The markets hardly reacted Friday, when severe domestic and
defense cuts started taking effect. The Dow rose 0.25 percent
that day. A popular index for gauging fear in the markets, the
CBOE Volatility Index, or the VIX, dropped nearly 1 percent.
"My sense is that our president and the White House are
crying wolf," Weisberg said of Obama's warnings about the
sequester last week.
Yu-Dee Chang, chief trader at Ace Investment Strategists in
Vienna, Va., said the impact of the sequester is being felt more
strongly in Washington than on Wall Street. Investors have been
less worried about the cuts, which may be dramatic but still
represent a tiny sliver of the national deficit.
But Wall Street still takes some of its cues from
Washington.
In the days building up to the fiscal cliff at the end of
last year, the markets were sanguine. But when a compromise was
reached on New Year's Day, the Dow surged more than 308 points,
or 2.35 percent. The Standard & Poor's 500-stck index jumped
36.25 points, or 2.54 percent.
More importantly, stock prices have been boosted by the
Federal Reserve's massive stimulus program, which has pushed down
long- and short-term interest rates. The low rates have
encouraged investors to seek out higher returns in the stock
market.
"The market has the Fed behind its back," Chang
said. "Everyone is still looking for that yield. . . . That's why
the Fed strategy is working."
Fed Vice Chair Janet Yellen signaled Monday that the Fed
would be continuing its $85 billion monthly bond-buying program.
On Tuesday, Cisco, United Technologies and Boeing led the
way among the Dow 30 with the biggest stock price gains; all
three rose more than 2 percent.
Another oft-cited benchmark for the market, the S&P 500, is
also approaching its record. The S&P jumped 14.59 points, or
roughly 1 percent, to 1539.79 on Tuesday, about 2 percent shy of
its intraday record of 1576.09. Like the Dow's, that high was
also set Oct. 11, 2007.
The Dow's previous intraday-trading nominal high was
14,198.10; the closing record was 14,164.53. Adjusted for
inflation, the Dow is still about 10 percent off the 2007 high.
Nevertheless, the market has shown a remarkable turnaround
since the crisis, at least compared with other measures, such as
the country's economic growth and joblessness figures.
People eyeing their retirement portfolios may be cheering
the market's return to pre-recession levels. But how much longer
can the good times last?
Ed Easterling, founder and president of investment firm
Crestmont Holdings, said stocks are at a point that is "about as
good as they can get, absent a bubble."
"It's time to be careful," he said.
That said, there is history pointing to a likely bull market
this year, according to a note by Sam Stovall, chief equity
strategist for S&P Capital IQ. Of the 26 times since 1945 that
the S&P rose in price in both January and February, the index,
including dividends, has been positive for the calendar year
every time.
 

MARKET PULSE: Oil & Gas Sector, Tiger Airways

6 Mar 2013

KEY IDEA

Oil and Gas sector: Valuations still not stretched
Similar to 3Q12, companies in the sector presented investors with 4Q12 earnings that were mostly in line, save for a few such as Ezra Holdings
(below) and STX OSV (below). Stocks in the oil and gas sector have performed well YTD, especially the small to mid cap firms. However, we note that
many are still trading at or slightly above mid-cycle valuations, suggesting that multiples are not overly stretched as long as the economic
recovery remains intact. Recovering earnings, sustainable earnings growth and continued contract wins for a select few are expected to be the main
drivers ahead. Though we have an OVERWEIGHT rating on the oil and gas sector, investors are advised to be selective. We favour companies with
earnings growth or sustainability backed by a strong order book and a positive outlook for their industry sub-segment. As such, our preferred picks
are Ezion Holdings [BUY, FV: S$2.33], ASL Marine [BUY, FV: S$0.86], Keppel Corporation [BUY, FV: S$12.68] and Sembcorp Marine [BUY, FV: S$5.84].
(Low Pei Han)
MORE REPORTS

Tiger Airways: Positioning for growth
Tiger Airways (TGR) announced yesterday that it plans to raise S$297m through a renounceable one-for-five rights issue and a non-renounceable
one-for-four preferential offering of perpetual convertible securities. Although this is nearly twice the amount raised in 2011, it is necessary for
the group to maintain its operational push towards its goals and was not unexpected by the street. Looking beyond the short-term jitters in terms of
its share price, we wish to highlight that TGR is still on track to close out the year on a positive note, and this revitalisation of its balance
sheet will give it the flexibility it needs to nurture its existing ventures. With the weak macro-environment continuing to favour budget airlines
such as TGR, we leave our forecasts unchanged. Reiterate BUY at an unchanged fair value estimate of S$0.86. (Lim Siyi)


For more information on the above, visit www.ocbcresearch.comfor the detailed report.


NEWS HEADLINES

- The Dow Jones rose 0.9% to clock a new high on Tuesday, surpassing levels reached more than five years ago, on indications of an improving US
economy.

- The Singapore government said it wants to raise the capabilities of Singaporeans as well as to calibrate the existing work pass framework.

- Members of parliament said the Wage Credit Scheme may benefit larger multinational companies and government-linked firms more than the SMEs.

- TTJ Holdings Limited said it had secured multiple projects totalling S$20m for the supply of structural steelworks and civil defence shelter doors
in Singapore.

- STATS ChipPAC said it will issue US$255m of 4.5% senior notes due 2018 in a private placement.

- WE Holdings Ltd said it has received the nod from the SGX on 1 Mar to list and quote its S$6.2m placement shares on the Catalist board.