If it were a stock, The Fault in Our Stars would be something Warren Buffet–a value stock, that is. How else to describe a move that cost just $12 million to make and is expected to pull in something close to $45 million during its first weekend, according to BoxOfficeMojo. It certainly helps that the movie is based on an uber-popular young adult novel about a girl with cancer raging against the dying of the light, and that reviewers are calling it “a sweet, romantic film full of sudden warmth and humor.” Now compare it to Edge of Tomorrow, the $178 million film that is most noteworthy for the fact that you get to see Tom Cruise get killed over and over again in a flick that one critic calls “Full Metal Jacket taking two War of the Worlds and waking up inside a version of Groundhog Day that's been held hostage by Private Benjamin.” Edge of Tomorrow is getting pretty great reviews, but that it’ll be lucky to top $32 million this weekend. Ouch.
Warner Bros./Everett Investors are buying the stock market, but whether it turns out to be a good investment is another question. The S&P 500 gained 1.3% to 1,949.44 this week, a record high, and the largest one-week gain since April 17. The Dow Jones Industrial Averagerose 1.2% to 16,924.28, also a record high and one that could leave us discussing Dow 17,000 next week.
Not to be outdone, the Nasdaq Composite advanced 1.9% to 4,321.40, its fourth consecutive week of gains, while the small-company Russell 2000 jumped 2.7% to 1,165.21, its largest one-week gained since February and the highest close since April 3.
Goldman Sachs (GS) was the biggest point contributor to the Dow Jones Industrial Average after gaining 4% to $166.19 this week.
Broadcom (BRCM)gained, making it the biggest gainer in both the S&P 500 and the Nasdaq 100. Broadcom announced this week that it would get out of the baseband chip business.
Keurig Green Mountain (GMCR) gained for no real reason, instead continuing the momentum that has come since Coca-Cola (KO) announced hat it had taken a stake in the company. Keurig Green Mountain was the second biggest gainer in the Nasdaq 100 and the sixth biggest in the S&P 500.
Uni-Pixel (UNXL) surged 41% to $7.38 this week, making it the biggest winner in the Russell 2000. Uni-Pixel benefited from the wearable electronics boom.
Much of the credit for the market’s big gain this week should go to European Central Bank, which announced a series of measures designed to boost Europe’s economy. Westpac’s Graeme Jarvis doesn’t think the ECB will be happy with what it accomplished because the euro didn’t weaken. He explains why:
In everything that The Draghi and pals have hinted at over the last few weeks the consistent theme was not that they wanted to see credit spreads tighter and equity markets higher. They wanted to increase the competitive advantage of Europe and that is easiestly done via currency depreciation. That is the real failure of last night and that is why I can't see how they are going to be happy with what they have wrought. A bug on a windscreen knows that HY spreads are overly compressed to IG spreads. It also knows that equity market valuations are getting a touch exuberant. That does not mean they have to stop and reverse, it is just that it is not those markets that needed a helping hand…
The ECB has helped inflate global asset prices even further while making things increasingly difficult for their export base. Regardless of the G20 directive every central bank around the world has concerns with the perceived elevated nature of their domestic currency… It will be interesting to see how the ECB manages this one.
After this week’s gain, the folks at Bespoke Investment Group call the S&P 500 “overheated.” They explain why:
Markets here in the US are as overbought as any around the world after the move higher seen this week. The S&P 500 is nearly 2.5 standard deviations above its 50-day moving average, which is the most extended it has been since May 2013. The 10-day advance/decline line for the S&P is also well into overbought territory, and 86.9% of the stocks in the index are above their 50-day moving averages. The last time this many stocks were above their 50-days was back in October 2013. Pretty much any way you look at it, this market is overheated in the near term.
Wells Capital’s Jim Paulsen thinks a correction is “likely” this year:
Even though the stock market is reaching the 2000 level, there are still not many cautionary signs of an imminent correction. But, this could change quickly. For the first time in this rally since the start of 2013, the S&P 500 index may be breaking out above its "self-sustaining" channel. Investor sentiment is perhaps already calmer than at any time in this recovery. Should the market continue to run toward 2000, could investor sentiment soon become too optimistic? Bond pressures are currently absent but we expect better growth and rising inflation evidence to eventually hit the bond market. Inflation evidence is already broadening but few are yet too worried. Finally, the doves still rule the Fed but will inflationary evidence, continued better than expected economic growth and ultimately the bond vigilante eventually force the Fed towards a more hawkish stance?
When that day comes, watch out.
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