The end of March brought on the last trading of the quarter, with the S&P Index hitting new all-time closing highs in what felt like a very choppy couple of weeks. While we still have not raised our official 14,590 price target for the Dow Jones Industrial Average as the peak for 2013, we will be adjusting that number by the end of the first week of April. 24/7 Wall St. has laid a blueprint and road map for what you should watch for in the month of April as the bull market continues despite the woes in Europe.
We evaluated many key market and economic issues for this April bull market road map. Companies raising dividends, the lists of stocks to buy and stocks to sell, the top merger trends, activist investors, gold and oil, tax issues, quantitative easing, the best bank stocks to buy, the earnings season on the way and many more key issues were considered.
In case you missed the last trading day of the quarter, here is the closing bell report for March 28. There are generally two sides of a story, and so it is with the bullish case for stocks. It is interesting that some of the financial media already has started discussing whether investors should take the “sell in May and go away” strategy in 2013 when April’s trends are not even set or determined. We wanted to review a few key statistics so far year-to-date (YTD), now that the first quarter has officially ended.
- After a 52-point gain to 14,578.54, the DJIA is up 11.2% YTD.
- After a six-point gain to 1,569.19, the S&P 500 Index is up 10.0% YTD.
- Gold ended up 1% in March at $1,596, but is down about 5% YTD.
- The 30-year Treasury yield was 2.95% at the end of 2012 and closed at 3.10% at the end of the first quarter.
- Risk-On: The S&P Speculative Composite Spread (junk bonds over Treasuries) was about 566 basis points at the end of 2012, but was down to 509 basis points at the end of March.
We have indicated how and why 10 big stocks will lead the charge to take the S&P 500 to new all-time highs with the likes of General Electric Co. (NYSE: GE), Exxon Mobil Corp. (NYSE: XOM) and Google Inc. (NASDAQ: GOOG). What is so interesting is that Apple Inc. (NASDAQ: AAPL) has fallen by 16% year-to-date and is currently the largest market cap of all stocks. Imagine how well the market would be if it actually was participating in the rally.
Watch for dividend news. International Business Machines Corp. (NYSE: IBM) should be just one of the five big cap dividend hikes we expect in April, and watch for more share buyback news from the company as well. Also on the dividend and tax front, UBS gave a list of closed-end funds that are tax-free municipal bond funds.
The Boeing Co. (NYSE: BA) woes may not be fully behind it, but the 787 Dreamliner tests are being expanded, and by the end of April the market should have a very clear picture about the battery situation on the new planes. The stock is challenging 52-week highs, but there is another $14 or so of upside before the stock chart is back at all-time highs.
Biogen Idec Inc. (NASDAQ: BIIB) is leading the biotech wave to all-time highs on the heels of a new FDA approval for yet another solid multiple sclerosis drug. Analysts are going to have play catch up or they will be forced to downgrade the stock on valuation. This stock hit new all-time highs in both of the final two trading days of March. A group called PropThink has offered up a list of its favorite biotech ideas to buy, and we would note that most of the big biotechs are at or close to all-time highs.
Verizon Communications Inc. (NYSE: VZ) is going to be one to watch. The short interest has risen sharply, likely on the growing pressure that Vodafone Group PLC (NASDAQ: VOD) wants to do something with its 45% stake in Verizon Wireless.
Here is a list of stocks to buy from the Merrill Lynch core portfolio holdings. Another very important list of stocks is the Deutsche Bank A.G. (NYSE: DB) list of 20 continued winning stock picks for the secular bull market. Secular bull market? That means very long term.
If you think that quantitative easing is about to end and that interest rates are due to scream higher, the speech from Fed President Evans shows internal support for keeping the genie in the bottle for well through the end of 2013 and perhaps much longer.
One thing to watch is a growing bubble in dividend stocks. It seems that some of these juicy dividend yields are getting a bit overbought as short sellers are really going on the offensive here against these high-quality high-yield dividend stocks. The biggest bubble looks to be forming in American Electric Power Co. (NYSE: AEP), unless it raises its payout again.
Japan remains key to the quantitative easing measures. If you want to know if all of that quantitative easing effort in Japan really will get rid of all the historic 20-plus year trend of stagflation and no growth, all you have to do is watch the WisdomTree Japan Hedged Equity (NYSEMKT: DXJ). This tracks Japanese stocks but eliminates the yen-weakening risk. That exchange traded fund is up a sharp 17.1% year-to-date,while its unhedged counterpart is up 10.7% year-to-date.
Also, watch out for the trends following activist investors and mergers. The Dell Inc. (NASDAQ: DELL) merger bidding war against (or with) Michael Dell is just one small tip of this activist investor iceberg. We have warned of an activist investor bubble influencing hundreds of billions of dollars worth of companies. This may keep taking shape throughout April, May and as long as the bull market keeps supporting attacks on management to milk out slightly better returns. Merrill Lynch also gave a list of the next leveraged buyout candidates of stocks to buy.
And there is just so much more to consider.
Watch the market leaders, even for (or really particularly for) overenthusiasm. Can Netflix Inc. (NASDAQ: NFLX) keep leading the market higher in speculative tech and media growth stocks? The market cap is back above $10 billion and the stock is literally up almost 100% year-to-date. One analyst just lifted his target to $225 on Netflix.
Investors and those in the housing market will be facing that pre-summer rush for housing. That rush will start in April and go through May and into summer, if the trends live up to historical data. Keep in mind that house prices just hit a six-year high. That being said, Stern Agee gave a list of direct housing stock winners that will keep winning in home builders. Another list is all the indirect winners from the great return of the housing market.
One more supporting notion for the continued bull market is that even a serious bearish strategist at Morgan Stanley (NYSE: MS) has finally capitulated. He raised his S&P 500 target to 1,600 in March from 1,434. The good news also supporting more bullish views is that the fourth-quarter 2012 gross domestic product (GDP) was revised higher. We will not say that 0.4% GDP growth is great, but we can take note that GDP outlooks for the United States have been on the rise. We saw that the Organization for Economic Cooperation and Development was the latest upgrade, calling for 3.5% growth in the first quarter and 2.0% growth in the second quarter in the United States.
Bank stocks have hit the brakes on the continued surge as the regulatory headlines have crimped their bullish trend. There are still many calls here. Deutsche Bank A.G. (NYSE: DB) gave its list of top money-center banks and regional banks that it says investors can buy. Bank of America Corp. (NYSE: BAC) also has two big cheerleaders, with Meredith Whitney calling for $15 on the stock this year and Dick Bove calling for it to go to $30 in the next two or three years.
The following may seem impossible and very hard to believe if you listen to the current administration, with its actions against coal and for alternative and renewable energy that have created a difficult situation for coal. Jefferies offered a list that included Peabody Energy Corp. (NYSE: BTU) for those companies that will still win in the world of coal. This is a severe contrarian call, but it is one to watch.
For the extreme income (or distributions) investors, we would point toward the trends in master limited partnerships (MLPs). These stocks (units really) have raised a mountain of cash in the past six weeks. That being said, Credit Suisse Group A.G. (NYSE: CS) have a list of the greatest MLPs to buy over the next year. Another list showed which MLPs would survive and thrive even under a rising rate environment. Kayne Anderson MLP Investment Co. (NYSE: KYN) is the key closed-end fund to track the moves in these, and the top ETF is the J.P. Morgan Alerian MLP Index ETN (NYSEMKT: AMJ).
Another supporting issue for the bull market to continue is the endless piles of cash on corporate balance sheets. This was put at $1.45 trillion as of the end of 2012. Imagine if Congress or the White House ever become amenable again to a tax holiday for repatriating so much of the foreign assets. For those who watch corporate taxes, here is a list of the large companies paying the most in taxes and a list of the big companies paying the least in taxes.
So, now you have a detailed outlook in support of the bull market to continue in April. We would caution that earnings season will start dribbling out big earnings news in the second week of April, led of course by Alcoa Inc. (NYSE: AA). We currently expect earnings season to be choppy, but it certainly helps that stocks were rising valiantly with the S&P 500 Index at new closing-bell all-time highs on the last trading day of the quarter.
If earnings season really was going to be a disaster, would stocks keep surging into the last day of the quarter? Let’s just hope that the market has become more efficient at discounting unexpected events than it has been in prior years of late.
Hedging gains or protecting potential losses is currently very cheap. The CBOE Volatility Index, or the VIX, or the Fear Index, closed at 12.70 at the end of March, versus 18.02 at the end of 2012. This is becoming the complacency index.
The bull market has been very rewarding so far in 2012. It sure looks like it can continue. There are always risks, but right now the direction looks set and the trend is your friend. Stay tuned.
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