Guardian of the Gains: A Week for Streaks as S&P 500 Closes at Record High

I give up. Each week, I try to come up with a new movie that somehow can be linked to the market. Last week, I thought the pickings were slim–I ultimately went with the Elmore Leonard adaptation Life of Crime–but I was wrong: I just can’t do it this week. There’s The Identical, which tells the story of twin musicians who are separated at birth. And look like Elvis. There’s Innocence, which sounds so ridiculous I’ll let you read about it here. And then there’s Wetlands, about a German girl and her hemorrhoids. With movies like these, no wonder Guardians of the Galaxy, which was released more than a month ago, is set to spend a third straight week at the top of the box-office heap.

Walt Disney Co./Everett Collection

Three weeks is nothing, however, compared to the S&P 500, which rose 0.2% to 2,007.71 this week–its fifth consecutive week of gains. That’s the longest streak since Nov. 2013, when the benchmark rose for eight straight weeks. The Dow Jones Industrial Average, rose 0.2% to 17,137.36 and the Nasdaq Composite ticked up 0.1% to 4,582.90. Both have five week winning streaks of their own. The poor Russell 2000 fell 0.4% to 1,170.13, snapping a four-week winning streak. The winner of the longest streak: The euro, which fell for an eighth week against dollar–its longest losing streak ever.

Still, it was a strange week for the S&P 500. The benchmark index hit new all-time intraday highs on Tuesday, Wednesday and Thursday, but only on Friday, when it gained 0.5%, did it finish up on the day–and at a new all-time closing high. Stranger still: The new closing high came on the day that US payroll data came in far weaker than the market expected. But with the European Central Bank on the verge of quantitative easing and Ukraine and Russia calling a true, it also makes a strange kind of sense. In fact, S&P Dow Jones Indices’ Howard Silverblatt calls it “a perfect week.” He explains:

The S&P 500 opened the historically worst performing month of the year (September) by posting three consecutive new intraday closing highs this week, with all three of them closing with slight losses for the day, as it missed a new intraday high on Friday. However, to make up for the intraday miss, it set a new closing high on Friday, its 33rd of the year.

A perfect week is generally defined when all five days are up (with the last one being June 16-20 of this year, for a 1.35% gain). However, given that each trading day this week set a new market record -> by the power invested in me by no one, I hereby declare this week to be a perfect week (another weekend of celebration).

MKM Partners’ Michael Darda isn’t worried about the disappointing jobless claims number:

Although job gains "disappointed" in August, we believe the underlying trend of 200K+ monthly NFP gains remains solidly in place. We say this because of the across the board strength in a broad array of leading labor market indicators (jobless claims, NFIB hiring plans, JOLTS job openings, Conference Board surveys, etc.). Moreover, with hourly wage growth still running at ~2% per annum and the nominal GDP trend closer to 4-5%, we should look forward to additional declines in unemployment and underemployment from here. If current trends persist, the U3 rate will be at "normal" levels in just under one year. Even the long-term unemployment rate has begun to fall precipitously; however, those working part time for economic reasons remains elevated. Thus, it will likely require a tighter labor market before we start to see nominal wage growth of 3% or more. Nonetheless, we believe the Fed is on track to end QE in October and start a gradual tightening process sometime next year. We expect the actual trend in Fed policy rates to lag most Taylor Rule models given the asymmetric risks associated with the ZLB, the Fed's view that the equilibrium real short rate may be below 2% for some time to come and the historical pattern of early (and thus failed) exits from the ZLB or near ZLB (the U.S. in 1937, Japan in 2000 and 2006, the ECB and Sweden in 2011, etc.).

Citigroup’s Tobias Levkovich raised his S&P 500 earnings forecast again:

S&P 500 companies put up another strong quarter in 2Q14 with EPS climbing by more than 9% year over year, bolstered by stronger economic activity after a rather poor 1Q14 and the earnings topped our forecast by about $0.80 per share (or 3%). Indeed, this was the second quarter in a row that Corporate America outpaced our expectations and thus we are being forced once again to raise our forecasts. In this context, we are boosting our 2014 EPS estimate from $118.20 to $119.25 and also increasing the 2015 numbers to $127.50 from $126.70. While top-down strategist/economist consensus estimates are not available for 2015, it is notable that our updated 2014 projection is ahead of average and median Street numbers of $116.84 and $117.00, respectively, according to Bloomberg data, while they trail bottom-up consensus figures modestly…Assuming that multiples remain flattish, one can easily envision a 2,100 target for the S&P 500 by the end of June next year, up somewhat from our prior 2,050 view.

Don’t be surprised if it gets there earlier, however.