The S&P 500 record close has arrived

In case anyone is why I haven't written an entry about the stock market since March 7th, look no farther than my comment at Kunstler's blog Monday for an explanation.

As for compound interest not working because of energy issues, look no farther than the U.S. Treasury notes. The 30-year is offering 3%, and the 10-year only 2%. People who expect a return on their investment just aren't getting it, in more ways than one. I guess that's why they're running up the stock market, although the Ides of March put a knife in the back of the ten-day rally, the longest since 1996. I got bored with that rally after three days, but the bull market might still have another top in it yet.

I was so bored that I saved the following headlines, but didn't bother to blog about them two weeks ago when they were news.

Will the Ides of March Stifle the Rally? (The answer ended up being yes)
Stocks Retreat: Dow Halts 10-Day Winning Streak, but Ends Positive for 4th-Straight Week
Dow Average Snaps Rally as Consumer Confidence Declines
Consumer Sentiment in U.S. Falls to Lowest Point in Year

Just the same, I did save them for future use. Today, the opportunity arrived, as the L.A. Times headline read S&P 500 hits record to cap rally while Reuters stated it more succinctly: S&P 500 ends at record closing high. Follow over the jump for the details.

I'll let the L.A. Times set the stage.

The new high in the Standard & Poor's 500 index is a fitting exclamation point for an impressive first quarter in the stock market.

The index of 500 large U.S. companies capped a four-year rally Thursday, recouping all of its losses from the 2008 global financial crisis. The milestone underscored investors' enthusiasm over the increasingly buoyant U.S. economy.

The S&P 500 is one of the last major market gauges to hit a new high. Other indexes, including the Dow Jones industrial average, already eclipsed their previous peaks from late 2007.

But the latest record is a more telling barometer because the S&P 500 is broader than the 30-stock Dow.

That's the big view. It's Reuters' turn to tell the numbers.

The benchmark S&P 500 closed its strongest quarter in a year - up 10 percent. The Dow climbed 11.3 percent and the Nasdaq gained 8.2 percent for the first three months of the year.
...
The S&P 500 had been in a fairly tight range, having traded within 10 points of the October 9, 2007, record closing high of 1,565.15 over the previous 13 sessions.

On Thursday, the S&P 500 .SPX gained 6.34 points, or 0.41 percent, to end at a new record of 1,569.19.

The Dow industrials, which surpassed its 2007 record on March 5 and has set a series of record highs since then, ended Thursday's session at yet another nominal closing high - at 14,578.54. For the day, the Dow rose 52.38 points, or 0.36 percent.

The Nasdaq Composite .IXIC added 11 points, or 0.34 percent, to close at 3,267.52.

The L.A. Times article gives more detail about how the indices for the smaller stocks have performed for the year so far.

Small and mid-size stocks fared even better. The Russell 2000 small-stock index jumped 12% while the Standard & Poor's mid-cap 400 gained 13.1%.

I was right; the market had at least one more top in it. Also, it was the new record I was looking for on the 7th, when I wrote that I'd hold off on calling for a top until the S&P 500 hit a new nominal high.

As for what's coming next, either Thursday's action was the top of the market or it's off to the races, and people on Wall Street know it. Reuters captures the ambivalence nicely.

The gains in the three first months of the year have a very bullish history. An analysis by Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, showed the S&P 500 has risen in the three first months of the year nine times in the past 30 years, and in each case, it has posted gains for the year.

The average yearly gain after such a start, the data showed, was 17.56 percent. An advance like that would leave the S&P 500 at about 1,676 at the end of this year.

"The key is the follow-through," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

"It will be very important how the market handles next week's data."

The L.A. Times reporting displayed more optimism.

Investors seem for the moment to have set aside fear of Washington's political dysfunction suffocating the incipient economic recovery. Concern about Europe's debt crisis and China's economy also have dissipated.

"None of those worst-case scenarios have come to pass," said Russ Koesterich, chief investment strategist at BlackRock Inc.

Several Wall Street investment firms have boosted their projections for how high the S&P 500 will climb this year. Wells Fargo Advisors, for example, expects the index to reach 1,575 to 1,625 by year-end, up from its previous estimate of 1,525 to 1,575.

I'd say the top of the range is very optimistic. That written, history suggests that this bull market might still have some life left.

Over the last 65 years, this is the seventh bull market to reach its four-year anniversary, according to research firm S&P Capital IQ. Five of the previous six went on to enjoy a fifth year of gains and three made it to a sixth year.

The average length of the previous six bulls was 74 months. The current S&P 500 rally, which launched in early March 2009, has lasted nearly 49 months. The longest bull market persisted for nearly a decade during the 1990s dot-com frenzy.

"This bull market still has a ways to go," said Bruce Simon, chief investment officer for City National Asset Management.

I know one person who probably isn't going to take any chances on the market going higher. Back in 2010, Michael Alexander concluded one of his most recent updates on stock cycles with his strategy regarding the market.

My strategy this time is simple. I expect we will have at least a few years of expansion after 2010, during which time the market should advance as it did in the last expansion. The S&P500 today is about where it was in early 2005. In the three years afterward the market briefly reached the 2000 highs. I see no reason why this cannot happen again and when it does I plan to sell at that level, even if it looks certain that the market will proceed higher.

I'll be watching to see if he follows through. Knowing Mike (and I do), he will and he'll post about it.