The stock market is the economy’s newest cheering section. It’s long been a manic-depressive member of that moody club known as the Leading Economic Indicators. But now it really seems to saying that being of sound mind, it is honestly upbeat. On Monday, the Dow rose to an 18-month high and closed just a hair below 11,000, at 10,973.55. One indicator of the market’s vigor is that it no longer moves as one body, which suggests that investors are no longer swinging from fear to greed and back again but are instead choosing selectively among the market’s different groups. Among the leaders on Monday were iron & steel stocks as well as electronic office equipment—real bets on the economy. Among the laggards were plenty of consumer staple companies, such as soft drink makers—the stock groups that investors flock to when they seek safety. This kind of discriminating stock selection suggests that we have moved out of the intensive care ward and are a healthier path.
Nor is it a one day phenomenon: Over the first quarter, consumer discretionary stocks (i.e., retailers, etc) returned about 10%, or double the return of consumer staples and more than triple the return of healthcare .These stats are courtesy of Bank of America/ Merrill Lynch, where quantitative strategist Savita Subramanian believes we are winding up stage one of the recovery move in stocks, a stage he calls the ‘Bounce.’ Next up, he says, is Stage 2, the Earnings Recovery. Let’s hope it’s winner because Stage 3 is, you guessed it, the big Tightening.