WASHINGTON, May 16, 2013 – After a mediocre start Wednesday morning, The Dow Jones industrial average held above 15,000 a day after it closed above the landmark level for the first time.
Investors focused on company earnings as reporting for the first quarter draws to a close. Although earnings growth has slowed from last quarter, profits are at record levels and projected to rise throughout the year.
Sin general, stocks have also defied expectations—including the Maven’s—that a sell-off would follow the spring surge as signs emerged that growth could be set for a slowdown. Both the Dow and the Standard & Poor’s 500 index have gained every month of the year and are trading at record highs.
Scott Wren, a senior equity strategist at Wells Fargo Advisors, predicted more gains in the short term for the market but said a pullback was likely at some point as the rise in prices begins to overstate the improvement in the outlook for the economy.
“We’re still going to keep grinding higher,” says Wren. But “I do think the market is ahead of itself.”
Wren just might be right, at least this morning. According to CNBC, weekly jobless claims “jumped by 32,000 to a seasonally adjusted 360,000, according to the Labor Department, climbing at the fastest pace in six months. Meanwhile, housing starts fell 16.5 percent in April to a 853,000-unit annual rate, well below expectations for a 945,000-unit rate.”
That’s a nasty double whammy, proving for one thing that the jobs situation, largely ignored by Washington for over four years despite protestations to the contrary, continues to hold the economy back. It’s likely exacerbated by the banks’ continuing refusal to commit loans of any substance to small businesses and potential homebuyers with even a smidgen less than stellar credit ratings.
In turn, that has Wall Street futures down mildly this morning before the opening bell. Then again, many’s been the day lately that the market opened mildly to sharply down before resuming its upward trajectory in the afternoon. That phenomenon may be exacerbated today and tomorrow by options expirations, which can cause wild gyrations in stock prices as HFTs and options, professionals try to pick off stock from the unwary.
After Friday, who knows? It’s possible we may finally experience the extended market setback that everyone on the Street, including the Maven, has been predicting. We’ve never known a market to go straight up forever. All technical indicators are looking for the misery to begin momentarily. But then, these same indicators were saying that last month, too.
The only thing that seems to be keeping the market aloft at this point is the 24/7 schedule of the Federal Reserve’s money printing presses.
Today’s stock idea:
Both energy-oriented MLPs and REITs have been doing lousy for the past few weeks as so-called “risk-on” money departs these relatively safe and definitely high-yielding investments and heads for more volatile sectors like tech and financials. That said, we’ve begun reinvesting in MLPs and REITs in spite of the fact that this choice has been making at least a portion of our portfolio look pretty sick.
MLPs we currently favor include Alon USA Partners (ALDW) and CVR Refining (CVRR), the latter of which took a price beating this week, courtesy of a large batch of shares issued via secondary, no doubt helping deleverage the portfolio of Carl Icahn a bit, given that he’s been instrumental in the reconstruction of that refiner over the past year. In any event, both MLPs boast huge current yields, although ALDW could be a bit tricky going forward given its unusual structuring.
Another MLP we’ve been in for awhile is Legacy (LGCY) which, after a long nightmare last fall, seems to be regaining its footing, even though its yield has remained robust. LGCY’s price has been climbing nicely for the last couple of weeks, counter the current energy trend.
Meanwhile, in REIT land, we favor consistent players Invesco (IVR) and Two Rivers (TWO). Both seem adept at keeping their portfolio mix one step ahead of current events. Net asset values of both have been relatively stable over the past few months as some of their competitors have seen drops in this number, courtesy of mortgage refinancing which trades higher-yielding mortgage securities for lower-yielding one, thus lowering asset-value and ultimately returns in REITs that invest in these securities.
That said, none of these companies is exactly falling out of bed yet, yield-wise, so as their prices drop during the current rotation, we’re rotating back in, picking up more as prices drop further. Recent price history suggests that we’re near the bottom range for some of these stocks, so we’re picking up some shares to enjoy the yield when the market finally drops.
Or at least we think it will.
—AP contributed to this report
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
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