Advance in US equities just starting

09:04, March 23, 2010      

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Retailers erased their stock market losses since the collapse of Lehman Brothers Holdings Inc and transportation companies doubled in a year, signs the advance in US equities is just getting started.

Amazon.com Inc and Gap Inc have wiped out declines of as much as 63 percent since the bear market began in October 2007 amid forecasts retailers' profits will increase 63 percent through 2012. The Dow Jones Transportation Average, where earnings are projected to almost triple in two years, is beating the Standard & Poor's 500 Index by 32 percentage points since March 2009, the widest gap for a rally since 1990.

Investors seeking signals equities will keep rising are finding them in industries most tied to the economy, the basis for a century-old forecasting technique known as Dow Theory. While bears say the gains aren't justified by earnings and that shares are climbing too fast, Stephen Lieber of Alpine Woods Capital Investors LLC and David Darst of Morgan Stanley are buying on speculation the expansion will revive profit growth.

"This is not a junk stock rally," said Lieber, who helps manage more than $7 billion in Purchase, New York. "This is a restoration-of-confidence rally. This is a business confidence rally."

Lieber owns Intel Corp, the Santa Clara, California-based semiconductor maker that climbed to an 18-month high of $22.24 last week amid optimism sales to business customers are growing.

The S&P 500 increased 0.9 percent and the MSCI World Index of stocks in 23 developed nations climbed 0.3 percent as both measures advanced for a third week. Government reports showing higher consumer spending and lower-than-expected inflation have pushed the Dow Jones Industrial Average up 3 percent in 2010, according to data compiled by Bloomberg.

An exchange-traded fund that matches the performance of the US benchmark index, the SPDR S&P 500 ETF Trust, rose 14 straight days through March 17, the longest streak in its 17-year history. The 11-day winning streak by the Dow transports that ended last week was the best since 1992, data compiled by Bloomberg show.

Companies whose profits are most tied to changes in US gross domestic product are beating those with the smallest connection to the economy by the widest margin on record.

The Morgan Stanley Cyclical Index, a measure of 30 stocks from Dearborn, Michigan-based Ford Motor Co to US Steel Corp in Pittsburgh, has surged 209 percent since March 6, 2009. It topped the Morgan Stanley Consumer Index, a gauge of companies such as Pfizer Inc and ConAgra Foods Inc that do relatively well during a contraction, by 147 percentage points.

Source:China Daily
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