Salient to Investors:

The S&P 500 Index’s advance to a record last week coincided with highs in the Russell 2000, the Dow Jones Transports, the S&P 500 Financials and Morgan Stanley’s gauge of economically sensitive equities. During the 4 biggest bull markets of the last 25 years, peaks in those indexes have come before the S&P 500 reached its highest level almost 90 percent of the time – the S&P 500 gained another 7 percent  on average for 6 months on average after they began declines. In 4 market tops during the last 23 years, small-cap stocks and the cyclical gauge never peaked after the S&P 500.

John Manley at Wells Fargo Funds Mgmt said the breadth shows an economy that is improving somewhat, the market has not been hyper-extended, and the Fed is still accommodative – so what’s not to like?

Phil Orlando at Federated Investors said the market is discounting mechanism looking out 2 to 3 quarters, and tells us that this economic and stock-market rally would improve.

Doug Ramsey at Leuthold Group said gains in small-caps, banks, transportation companies and cyclical stocks suggest the rally is not over.

Bears say the breadth shows indiscriminate buying just as profit growth slows and the Fed prepares to taper. Leo Grohowski at BNY Mellon Wealth Mgmt said increases in stock market breadth will work against bulls should earnings growth slow and investors become convinced all at once that Bernanke will taper as the economy improves. Grohowski cautions against using the past is a reliable indicator for the future primarily because the interest rate support for the market won’t be as strong, and actual news of economic improvement will increase concern about the Fed removing the punchbowl.

Uri Landesman at Platinum Partners said the simultaneous rallies are coincidence and valuations suggest past patterns are unlikely to be repeated – the market is priced for perfection and there is hardly perfection in the world.

Analysts expect S&P 500 earnings to rise 2.4 percent in Q2 from a year ago versus an average 4.3 percent in the last 5 quarters and 28 percent in 2010 and 2011. 73 percent of companies have exceeded forecasts in July, matching last quarter.

460 S&P 500 stocks are up in 2013, the most since at least 1990, and more than 90 percent were above their 200-day moving averages last week, versus 62 percent average over the past 23 years.

The S&P 500 is at 16.3 versus 17.5 when the last bull market ended in October 2007.

Profits are expected to climb 14 percent for cyclicals in 2014, 3 percent points more than the full market.

Transportation stocks are projected to boost profits more than 3 times as much as the S&P 500 in 2013.

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