According to Bloomberg and the Strategas Bellwether Index the stock market could be due for another bout of strength:
U.S. stocks such as General Electric Co. whose performance are most tied to the economy are signaling that the Standard & Poor’s 500 Index will extend its 56 percent advance, according to Strategas Research Partners LLC.The CHART OF THE DAY shows the Strategas Bellwether Index, a basket of 15 S&P 500 companies with the closest correlation to economic expansion, has risen to the highest level in almost two years relative to the equity benchmark.
“This outperformance helps to confirm the broader market’s strength and speaks to the underlying strength of the cyclical rally,” New York-based technical analyst Christopher Verrone wrote. Verrone said the custom index “convincingly” broke out of a four-month range, and “it’s getting easier and easier to make the case for additional market upside.”
The stocks in the basket have an 82 percent correlation to changes in gross domestic product over the last decade, Verrone wrote. The companies include Apple Inc., American Express Co., Walt Disney Co., Hewlett-Packard Co. and Schlumberger Ltd.
The S&P 500 has jumped 56 percent since tumbling to a 12- year low on March 9 and has climbed 17 percent this year. Fairfield, Connecticut-based GE, the world’s biggest maker of power-plant turbines, more than doubled since March 9. It added 65 cents yesterday to $16.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.