Stock Market Prices Playing Sidekick Role in a ‘Buddy Movie’

U.S. Stock Markets Continue to Grow

As shown in Graphs 1, 2 and 3, the most widely known and discussed U.S. stock market indices – Dow Jones Industrial (DJI), S&P 500 and NASDAQ – all set new record highs in July.

2017-08-08-Stock-Markets-Graphic

On a year-over-year basis, the DJI at the close of last month was +18.8%; the S&P 500 was +13.6%; and NASDAQ especially stood out with a gain of +23.0%.

Just as remarkable have been the improvements in those three indices relative to their prior peaks.

Since its previous summit in October 2007 (13,930), the DJI is +57.2%.

Since October 2007 (1,549), the S&P 500 is +59.5%.

Also since October 2007 (2,859), when it managed a mini-peak, NASDAQ is presently +122.0%. NASDAQ is even up substantially (+35.2%) relative to its ‘Mt. Everest’ of peaks in February 2000 (4,696), when the ‘dot.com boom’ was in full swing.

Ongoing improvements in employment are helping to underpin confidence in the U.S. economy, although a better labor market isn’t the only star in this ‘buddy movie’. The sidekick role is being played by continually rising equity prices.

While it’s exciting and fun to watch share prices trend ever upwards, it’s also legitimate to wonder how much longer this can last.

Graph 1: New York Stock Exchange – Dow-Jones Industrial (30)
New York Stock Exchange – Dow-Jones Industrials (30)
The chart shows month-end closing figures. The latest data point is for July 31, 2017.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.
Graph 2: New York Stock Exchange – Standard and Poor’s (500)
New York Stock Exchange – Standard and Poor’s (500)
The chart shows month-end closing figures. The latest data point is for July 31, 2017.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.
Graph 3: NASDAQ Composite Index
NASDAQ Composite Index
The chart shows month-end closing figures. The latest data point is for July 31, 2017.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.

Canadian Stock Markets Growing Slowly

North of the border, as set out in Graph 4, stock market prices have not been faring as well.

In late-2007, both the DJI and the S&P/TSX Composite – i.e., the index for the Toronto Stock Exchange – were vying to break above 15,000. Since that time, the DJI has risen to almost 22,000, while the TSX has languished.

Only on rare and brief occasions has the TSX exceeded the 15,000 benchmark.

Graph 4: S&P/TSX Composite
Toronto Stock Exchange
S&P/TSX Composite Toronto Stock Exchange
The chart shows month-end closing figures. The latest data point is for July 31, 2017.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.

Graph 5 shows the progression of improvements in the Dow Jones, S&P 500, NASDAQ and TSX Composite indices since February 2009.

The monthly values for each index are expressed relative to their trough-level values. February 2009 was when all four indices last fell to their low points.

Versus eight-and-a-half years ago, when economies everywhere were in the vice-grip of the Great Recession, the DJI is now +210%; the S&P 500 is +236%; and NASDAQ is performing best of all at +361%.

There’s another way to express NASDAQ’s stunning achievement. Its present value above 6,300 is four-and-a-half times greater than it was when the economic tidewaters disappeared (1,378 at the end of February 2009).

The TSX, on the other hand, is up a comparatively modest +86%.

Graph 5: Performances of key stock market indices since most recent trough
Performances of key stock market indices since most recent trough
*Each month’s closing figure vs. the Feb, 2009 closing value for the index. Feb ’09 was the most recent trough for all 4 indices.
The Key Stock Market Indices are:
1) New York Stock Exchange – Dow-Jones Industrial (30);
2) New York Stock Exchange – Standard and Poor’s (S & P) (500);
3) National Association of Securities Dealers Automated Quotations – NASDAQ Composite Index;
4) Toronto Stock Exchange – S & P/TSX Composite.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: ConstructConnect.

Table 1, however, offers encouragement that the TSX may soon see significant lift again.

International Markets Show Growth Month Over Month

With year-over-year gains ranging from +17% to +25%, stock markets in Germany, Japan, Asia and some ‘frontier’ or ‘pre-emerging’ regions are keeping pace with North America. The disappointing result for London’s FTSE (+10% y/y) is a unique situation having to do with concerns about the impacts on British firms that may arise from Brexit negotiations.

Table 1: Some Other Key International Stock Market Indices
Month-end 
Closing Value YEAR/ MONTH/
Stock Index:  JUL 2017 YEAR/ MONTH
iShares MSCI Emerging Markets Index (EEM):            43.98 6.3% 21.5%
iShares MSCI Emerging Markets Asia Index (EEMA):            68.23 5.2% 25.0%
London FTSE 100 (^FTSE):      7,372.00 0.8% 9.9%
German DAX 30 (^GDAXI)    12,118.00 -1.7% 17.2%
Hong Kong Hang Seng (^HSI):    27,324.00 6.1% 24.8%
Tokyo Nikkei 225 (^N225):     19,925.00 -0.5% 20.3%
Shanghai Composite Index ETF (510210.SS)       3,251.00 1.8% 9.1%
iShares MSCI Frontier 100 ETF for pre-emerging markets (FM):           29.28 2.4% 16.7%
 
“Ticker symbols” are in brackets. MSCI (formerly Morgan Stanley Capital International) is a leading provider of investment decision support tools, with indices as one specialty. “iShares” is a web site that specializes in “exchange traded funds”, or ETFs, managed by BlackRock Investments LLC.
Data source: finance.yahoo.com / Table: ConstructConnect.

The conclusion to be drawn from Table 1 is that economies elsewhere in the world are perking up, meaning good news for global trade and commodity prices. Canada’s important resource sector has long been awaiting such a boost.

Furthermore, the Bank of Canada is now feeling positive enough about the economy to begin raising its policy-setting ‘overnight’ rate. Staying modest at only plus 25 basis points (where 100 basis point equals 1.00%), the BOC’s first hike in seven years was introduced in July.

There is an expectation prevalent among many analysts that further upwards action will take place in October.  

Others are taking notice. The International Monetary Fund (IMF) recently concluded that ‘real’ (i.e., inflation-adjusted) gross domestic product (GDP) growth in Canada this year, at +2.5%, will lead the G-7 group of industrialized nations.

Table 2: Stock exchanges – performances of key indices – July 31, 2017
INDEX 52-WEEK LOW 52-WEEK HIGH YEAR AGO
(JUL 29, 2016)
MONTH AGO
(JUN 30, 2017)
Latest Month-end Closing Prices
(JUL 31, 2017)
  PER CENT CHANGE,

LATEST VERSUS
52-WEEK LOW 52-WEEK HIGH YEAR AGO MONTH AGO
Dow Jones Industrial
NYSE (^dji)
Nov 4 16
17,904
Jul 31 17

21,930
18,432 21,350 21,891 22.3% -0.2% 18.8% 2.5%

S & P 500
NYSE (^gspc)

Nov 4 16
2,084
Jul 27 17

2,484
2,174 2,423 2,470 18.5% -0.6% 13.6% 1.9%
NASDAQ
(^ixic)
Nov 4 16

5,034
Jul 27 17

6,461
5,162 6,140 6,348 26.1% -1.7% 23.0% 3.4%
S & P/TSX Composite
TSX (^gsptse)
Sep 13 16
14,319
Feb 21 17

15,943
14,583 15,182 15,144 5.8% -5.0% 3.8% -0.3%
Sources: New York Stock Exchange (NYSE), Standard and Poor›s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Table: ConstructConnect.

Table 3 shows year-over-year (y/y) and month-to-month (m/m) share prices for 35 key exchange-listed companies in the U.S. and Canada.

The average y/y surge in the DJI, S&P 500 and NASDAQ indices, as of July closings, has been about +20%. Apart from six of the eight corporations appearing under ‘high-tech’ in Table 3, there have been only a half-dozen out of the remaining 27 that have beaten that yardstick: Best Buy (+73.6%); United Rental (+49.3%); Caterpillar (+37.7%); Valero Energy (+31.9%); Louisiana Pacific (+24.3%); and Magna (+23.6%).

Table 3: Equity Prices for Selected Companies in Key Industrial Sectors –
July 31, 2017

Latest
month-end Per cent change,
Year Month closing latest versus:
ago  ago prices
(Jul 29, (Jun 30, (Jul 31, Year Month
2016) 2017) 2017)  ago  ago
 
Design services:   
AECOM Technology Corp (ACM) 35.49 32.33 31.90 -10.1% -1.3%
Aecon Group (ARE.TO) 17.39 16.14 15.06 -13.4% -6.7%
SNC-Lavalin Group Inc. (SNC.TO) 56.25 56.07 54.91 -2.4% -2.1%
Stantec Inc. (STN) 25.46 25.10 25.50 0.2% 1.6%
 
Construction on-site:   
Caterpillar Inc. (CAT) 82.76 107.46 113.95 37.7% 6.0%
Louisiana-Pacific Corp. (LPX) 20.20 24.11 25.11 24.3% 4.1%
Pulte Group Inc. (PHM) 21.18 24.53 24.42 15.3% -0.4%
United Rentals Inc. (URI) 79.67 112.71 118.96 49.3% 5.5%
 
Construction retail:  
Armstrong World Industries (AWI) 42.47 46.00 48.55 14.3% 5.5%
Home Depot (HD) 138.24 153.40 149.60 8.2% -2.5%
Lowe’s Companies Inc. (LOW) 82.28 77.53 77.40 -5.9% -0.2%
Sherwin-Williams Co. (SHW) 299.73 350.96 337.27 12.5% -3.9%
 
General retail:  
Best Buy (BBY) 33.60 57.33 58.34 73.6% 1.8%
Canadian Tire (CTC-A.TO) 137.19 147.56 142.31 3.7% -3.6%
Costco (COST) 167.22 159.93 158.51 -5.2% -0.9%
CVS Caremark (CVS) 92.72 80.46 79.93 -13.8% -0.7%
Walgreens Boots (WBA) 79.25 78.31 80.67 1.8% 3.0%
Walmart (WMT) 72.97 75.68 79.99 9.6% 5.7%
 
Motor vehicle:  
Ford (F) 12.66 11.19 11.22 -11.4% 0.3%
General Motors (GM) 31.54 34.93 35.98 14.1% 3.0%
Magna (MGA) 38.57 46.33 47.69 23.6% 2.9%
 
Oilfield services:  
Fluor Corp. (FLR) 53.52 45.78 43.43 -18.9% -5.1%
Halliburton Co. (HAL)  43.66 42.71 42.44 -2.8% -0.6%
Schlumberger (SLB) 80.52 65.84 68.60 -14.8% 4.2%
 
Oil and gas companies:   
ConocoPhillips (COP) 40.82 43.96 45.37 11.1% 3.2%
Exxon Mobil Corp. (XOM) 88.95 80.73 80.04 -10.0% -0.9%
Valero Energy Corp. (VLO) 52.28 67.46 68.97 31.9% 2.2%
 
High-tech firms:   
Alphabet/Google (GOOG) 768.79 908.73 930.50 21.0% 2.4%
Amazon (AMZN) 758.81 968.00 987.78 30.2% 2.0%
Apple Inc. (AAPL) 104.21 144.02 148.73 42.7% 3.3%
Facebook (FB) 123.94 150.98 169.25 36.6% 12.1%
Intel Corp. (INTC) 34.86 33.74 35.47 1.7% 5.1%
Microsoft Corp. (MSFT) 56.68 68.93 72.70 28.3% 5.5%
Netflix (NFLX) 91.25 149.41 181.66 99.1% 21.6%
Twitter (TWTR) 16.64 17.87 16.09 -3.3% -10.0%
Data is for each month-end closing.
Data source: Yahoo and MSN Money / Table: ConstructConnect.

Besides high-tech, the stock market indices have been driven by ‘financials’, a category which includes banks and insurance companies. Profitability for those companies will be aided by U.S. and Canadian central bank moves towards higher interest rates. 

‘Financials’ have been left out of Table 3 to instead concentrate on ‘ground-level’ firms.

‘Design services’ firms are still waiting for a big boost from infrastructure spending initiatives, more so in the U.S., but also in Canada.

Construction Stocks Show Strong Growth

Companies selling directly into on-site construction have been seeing their equity prices on the upswing. Caterpillar (+37.7% y/y) derives enormous sales of mining and construction equipment from a foreign customer base and it is benefitting from the orderly retreat in value of the U.S. dollar over the past six months.  

Of all the 35 enterprises appearing in Table 3, United Rentals has experienced the biggest percentage-change recovery in its share price since the Great Recession, over +2,000%.

Armstrong World Industries and Sherwin-Williams, producers of floor coverings and paint, have made solid advances of +14.3% y/y and +12.5% y/y respectively in what has been labeled ‘construction retail’ in Table 3.

In ‘general retail’, the only standout is Best Buy (+73.6% y/y). Many other ‘bricks and mortar’ firms could have been included, but as might be expected from the numerous outlet closings that have been announced, the picture with respect to their share prices has not been pretty. 

The parts maker Magna (+23.6% y/y) has done best among the motor vehicle firms. Auto sales are still setting records this year in Canada, but they have tailed off in the U.S.

The stock values of energy sector firms shot up earlier this year when the price of oil rose up off the mat and climbed to $40 USD per barrel, with hopes that OPEC output restraints might drive it higher. But the price of crude now appears stuck between $40 and $50 and enthusiasm has waned, at least temporarily.

Clearly, it’s in the high-tech sector of Table 3 where most of the bubbling froth is to be found. The share price of Netflix has doubled over the past 12 months. For all the talk of Apple perhaps not being as innovative as it once was, its share price is +42.7% y/y. Facebook is +36.6%; Amazon, +30.2%; Microsoft, +28.3%; and Alphabet/Google, +21.0%.

Intel (+1.7% y/y) and Twitter (-3.3%) are the stragglers. As a sidebar, it’s interesting to note that Twitter is the sole company appearing under Table 3’s ‘high-tech’ sub-heading that is not listed on NASDAQ, but rather on the New York Stock Exchange (NYSE).

Finally, there is one other interesting observation to be recorded. The foregoing often speaks of the change in share value from the Great Recession to the present. Two of the prominent high-tech firms, however, did not have their Initial Public Offerings (IPOs) until several years after 2008-2009 − Facebook in 2012 and Twitter in 2013. 

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