Salient to Investors:

  • The S&P 500 has closed at new highs 33 times in 2014, while less than 6% of stocks are in bear markets.
  • 47% of Nasdaq Composite stocks and over 40% of Russell 2000 and Bloomberg IPO Index stocks are at least 20% off their 12-month highs. 45% of small-cap stocks, IPOs and tech stocks, and 18% of S&P 500 stocks, were at least 20% below their 52-week highs in October 2007.
  • Analysts forecast over 20% of Nasdaq Composite and Russell 2000 companies will be unprofitable this quarter, while only 15 companies in the S&P 500 reported a loss for the past year.
  •  Skip Aylesworth at Hennessy Funds said it is 3 years since a 10% decline in the S&P 500 and investors are avoiding companies that will suffer the most when the market stumbles. Aylesworth said small caps tend to get ahead of themselves and get whacked when the market corrects.
  • Malcolm Polley at Stewart Capital Advisors sees Alibaba’s performance will indicate the market’s health and says bigger companies seem to do better and large tech names tend to perform very well. Polley said the bull market is long in the tooth and needs to rest.
  • David James at James Investment Research said most people do not see that most stocks are not making new highs and many stocks have made significant declines.
  • Brad Thompson at Frost Investment Advisors said stocks with weak or no earnings and fewer shares to trade fare worse during market turmoil, but does not subscribe to the market will fall once the punch bowl is taken away camp.
  • The San Francisco FRB said low volatility across financial markets may signal investors are underestimating how quickly the Fed will raise interest rates.
  • Dan Miller at GW&K Investment Mgmt said US stocks remain one of the best investments and the weak performance in small caps in 2014 is not that bad considering they rose almost 60% over the previous 2 years. Miller said low interest rates and the good US economy will push the market higher.
  • Excluding unprofitable companies, the Russell 2000 is at 20.5 x earnings versus 17.9 x for the S&P 500.
  • Oliver Pursche at Gary Goldberg Financial Services said the performance divergence is a valuation story, and nervous investors are more likely to sell off what they perceive to be riskier asset classes.

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