Dollars and Sense: Record highs on mixed news--the Fed speaks again

Record highs. Last Monday, the Dow and the S&P 500 hit new records, and then again several times later in the week these indexes bounced around and hit either new intraday or closing highs. And, by the way, on Feb. 1, 2009, just a little more than six years ago, the Dow was just above 7,000. Today it is at 18,000. This is one of the most significant bull market runs in stock market history.

Mediocre news. But the economic news continues to be mediocre. We’re back into the cycle we were in a couple of years ago, when bad news in the economy was good news for the markets. Because this bull market has depended so heavily on government stimulus, mediocre economic performance has meant government intervention—in this case in the form of artificially low interest rates—will continue. Last week, for example, the Federal Reserve released the minutes from its April meeting. They indicated the Fed would not raise interest rates in June, as some had speculated they would, and it remains unlikely rates will rise until the end of the year. That was a shot in the arm to the markets and a contributor to this new round of record highs.

Mixed reports. Also on Monday of last week, we learned the National Association of Home Builders/Wells Fargo Housing Market index fell in April. But later in the week, a government report said housing starts surged to an eight-year high, jumping 20 percent in April from the month before.

Mergers and acquisitions. Endo International, a generic drugmaker, said it would buy privately held Par Pharmaceutical from TPG Capital in an $8.05 billion deal. Ascena Retail said it would acquire Ann Inc for $2.15 billion in cash and stock. CVS Health said it would buy pharmacy service provider Omnicare for $10.1 billion. These are not household names—except for CVS, which is a well-known retail brand in many parts of the country—but any time there’s a “b,” as in billions, in the acquisition price, you know some serious money is moving around. That means the markets are unfrozen, a good sign compared to just a few years ago, when companies and financial institutions sat on cash and these kinds of deals couldn’t get done.

Retail earnings. Some retailers have year-ends of Jan. 31, so they can fully account for the Christmas season. They report quarterly earnings a month behind the rest of the markets, so we got reports from a number of major retailers last week. Walmart, the world’s largest retailer, reported earnings and sales that fell short of Wall Street estimates. The retailer cited higher wages for workers and a stronger dollar as the reasons for the weak profit number. Target reported earnings that beat Wall Street estimates, but Lowe’s fell short of expectations.

The week ahead. The markets are closed today for the Memorial Day holiday, and usually this marks the beginning of a slower summer season. The old saying on Wall Street used to be “sell in May and go away.” But in the era of electronic trading, that’s not so much the case. We certainly haven’t seen a sell-off in May. The record highs are proof of that. Still, I think we’re looking at a quiet week, barring any unusual news event. Not a lot of government reports come out this week, though I will be watching the Conference Board’s consumer confidence index, out Tuesday. And we’ll get a revision of the second-quarter gross domestic product report on Friday. There’s enough to keep us on our toes, but I don’t expect any surprises. Of course, I never expect surprises. That’s why we call them surprises!

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